1933 Act File No. 33-45973
1940 Act File No. 811-6576
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
----
Pre-Effective Amendment No. ....................
Post-Effective Amendment No. _23 ....................... X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 24 ...................................... X
---- ----
BT PYRAMID MUTUAL FUNDS
(Exact Name of Registrant as Specified in Charter)
5800 Corporate Drive, Pittsburgh, Pennsylvania 15237-7010
(Address of Principal Executive Offices)
(412) 288-1900
(Registrant's Telephone Number)
Jay S. Neuman, Esquire Copies to: Burton M. Leibert, Esq.
Federated Investors Tower Willkie Farr & Gallagher
Pittsburgh, Pennsylvania 15222-3779 787 Seventh Avenue
(Name and Address of Agent for Service) New York, New York 10019
It is proposed that this filing will become effective
(check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b) [ ] on (date) pursuant to
paragraph (b) [X] 60 days after filing pursuant to paragraph (a)(1) [ ] on ____
pursuant to paragraph (a)(1) [ ] 75 days after filing pursuant to paragraph
(a)(2) [ ] on (date) pursuant to paragraph (a)(2) of rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
BT Pyramid Mutual Funds
INFORMATION ABOUT INVESTING IN THE
BT INVESTMENT EQUITY APPRECIATION FUND
With the goal of achieving long-term capital growth, primarily through
investment in common stocks of medium-sized U.S. companies with strong growth
prospects
Prospectus
January 31, 1999
Bankers Trust Company
Investment Adviser
Like shares of all mutual funds, these securities have not been approved or
disapproved by the Securities and Exchange Commission nor has the Securities and
Exchange Commission passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
1
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TABLE OF CONTENTS
EQUITY APPRECIATION FUND OVERVIEW
GOAL............................................................. 3
CORE STRATEGY.................................................... 4
PRINCIPAL RISKS OF INVESTING IN THE FUND......................... 5
WHO SHOULD CONSIDER INVESTING IN THE FUND........................ 6
TOTAL RETURNS, AFTER FEES AND EXPENSES........................... 7
ANNUAL FUND OPERATING EXPENSES................................... 9
EQUITY APPRECIATION FUND IN DETAIL
OBJECTIVE........................................................10
STRATEGY.........................................................11
PRINCIPAL INVESTMENTS............................................12
INVESTMENT PROCESS...............................................13
RISKS............................................................15
MANAGEMENT OF THE FUND...............................................18
Board of Trustees................................................18
Investment Adviser...............................................19
Portfolio Manager................................................20
Administrator....................................................21
CALCULATING THE FUND'S SHARE PRICE...................................22
DIVIDENDS AND DISTRIBUTIONS..........................................23
TAX CONSIDERATIONS...................................................24
BUYING AND SELLING FUND SHARES.......................................25
FINANCIAL HIGHLIGHTS.................................................27
2
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EQUITY APPRECIATION FUND OVERVIEW
GOAL
The Fund invests for long-term capital growth.
3
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CORE STRATEGY
The Fund invests primarily in the stocks and other equity securities of
medium-sized U.S. companies with strong growth potential.
4
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PRINCIPAL RISKS OF INVESTING IN THE FUND
An investment in the Fund could lose money, or the Fund's performance could
trail that of other investments. For example,
o Stocks that the Investment Adviser has selected could perform poorly;
o Medium-sized company stock returns could trail stock market returns
generally because of the liquidity of risks specific to medium-sized
company investing, i.e., greater share-price volatility and fewer
buyers for medium-sized company shares in periods of economic or stock
market stress. Such lack of liquidity may accelerate a prevailing
downward price trend and limit the Fund's ability to exit from an
unsuccessful investment; or
o The stock market could decline, or could under perform other types of
investments.
5
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WHO SHOULD CONSIDER INVESTING IN THE FUND
You should consider investing in the Equity Appreciation Fund if you are seeking
long-term capital growth. There is, of course, no guarantee that the Fund will
realize its goal. Moreover, you should be willing to accept greater short-term
market fluctuations in the value of your investment than you would typically
experience investing in certain bonds or money market funds.
You should not consider investing in the Equity Appreciation Fund if you are
pursuing a short-term financial goal, are investing to provide a regular income
or if you cannot tolerate fluctations in the value of your investments.
The Fund by itself does not constitute a balanced investment program. It can,
however, afford you exposure to investment opportunities not available to an
investor in established large company stocks or small company stocks.
AN INVESTMENT IN THE EQUITY APPRECIATION FUND IS NOT A DEPOSIT OF BANKERS TRUST
COMPANY OR ANY OTHER BANK AND IS NOT INSURED OR GUARANTEED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
6
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TOTAL RETURNS, AFTER FEES AND EXPENSES
The bar chart and table on this page can help you evaluate the potential risk
and rewards of investing in the Fund, by showing changes in the Fund's
performance year to year. The bar chart shows the Fund's actual return for each
full calendar year since the Fund began selling shares to the public on October
12, 1993 (its inception date). The table compares the Fund's average annual
return with the S&P Mid-Cap 400 Index over the last one and five years, and
since inception.
The Index is a passive measure of stock performance. It does not factor in the
costs of buying, selling and holding stock--costs which are reflected in the
Fund's results.
[SIDEBAR: THE S&P MID-CAP 400 INDEX IS A WIDELY ACCEPTED BENCHMARK OF
MEDIUM-SIZED COMPANY STOCK PERFORMANCE. THE INDEX IS A MODEL, NOT AN ACTUAL
PORTFOLIO, THAT TRACKS 400 PUBLICLY HELD MEDIUM-SIZED U.S. COMPANIES. THE
WEIGHTED AVERAGE MARKET CAPITALIZATION FOR THE COMPANIES IN THE INDEX HAS RUN
ABOUT $X BILLION IN RECENT YEARS. THAT COMPARES TO $Y BILLION FOR THE COMPANIES
IN THE S&P 500, A CORRESPONDING LARGE COMPANY BENCHMARK.]
FUND PERFORMANCE FOR EACH FULL CALENDAR YEAR SINCE INCEPTION
[bar chart]
----------------------------------------
% % % % TK%
----------------------------------------
1994 1995 1996 1997 1998
----------------------------------------
Since inception, the Fund's highest return in any calendar quarter was [__]% and
its lowest quarterly return was (____)%. Past performance offers no indication
of how the Fund will perform in the future.
7
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AVERAGE ANNUAL RETURNS AS OF DECEMBER 31, 1998
----------------------------------------------------------------------
1 YEAR 5 YEARS SINCE
INCEPTION
(10/12/93)*
----------------------------------------------------------------------
Equity Appreciation Fund % N/A %
----------------------------------------------------------------------
S&P Mid-Cap 400 Index % % %
----------------------------------------------------------------------
- ---------
* The S&P Mid-Cap 400 Index is calculated from 9/30/93.
8
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ANNUAL FUND OPERATING EXPENSES (EXPENSES PAID FROM FUND ASSETS) This table
describes the fees and expenses that you may pay if you buy and hold shares of
the Equity Appreciation Fund.
---------------------------------------------------------------------
PERCENTAGE OF AVERAGE
DAILY NET ASSETS
---------------------------------------------------------------------
Management Fees 0.65%
---------------------------------------------------------------------
Distribution and Service (12b-1) Fees None
---------------------------------------------------------------------
Other Expenses 0.55%
---------------------------------------------------------------------
Total 1.20%
---------------------------------------------------------------------
Less: Fee Waivers or Expense Reimbursements (0.20%)*
---------------------------------------------------------------------
Net Expenses 1.00%
---------------------------------------------------------------------
Expense Example
The example below illustrates the expenses you would have incurred on a $10,000
investment in the Fund. It assumes that the Fund earned an annual return of 5%
over the periods shown, that the Fund's operating expenses remained the same
over the periods shown and that you sold your shares at the end of the period.
-------------------------------------------
1 year 3 years 5 years 10 years
-------------------------------------------
$102 $318 $552 $1,225
-------------------------------------------
You may use this hypothetical example to compare the Fund's expense history with
other funds. It does not represent an estimate of future returns or expenses.
Your actual costs may be higher or lower.
- ---------
* Bankers Trust has agreed for the 16-month period from the Fund's fiscal year
end of September 30, 1998, to waive its fees and reimburse expenses so that
total expenses will not exceed 1.00%.
9
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EQUITY APPRECIATION FUND IN DETAIL
OBJECTIVE
The Equity Appreciation Fund seeks long-term capital growth. The Fund invests
the majority of its assets in the stock and other securities with equity
characteristics of medium-sized U.S. companies. We believe these companies
contain the greatest concentration of businesses with significant growth
prospects. Thus, the Fund invests primarily in companies whose market
capitalization falls in the range of the S&P Mid-Cap 400 Index at the time it
first purchases the shares. To a lesser extent, the Fund may also invest in
companies outside the United States that meet its investment criteria.
[SIDEBAR: "MARKET CAPITALIZATION," OR "MARKET CAP," PROVIDES A READY GAUGE OF A
COMPANY'S SIZE. IT MULTIPLIES THE TOTAL NUMBER OF THE COMPANY'S OUTSTANDING
SHARES BY THE CURRENT PRICE OF ITS STOCK.]
The Fund invests for long-term capital growth, not income; any dividend and
interest income is secondary to the pursuit of its objective. While we give
priority to long-term capital growth, we cannot offer any assurance of achieving
our objective. The Fund's objective is not a fundamental policy of the Fund. We
must notify shareholders before we change it, but we do not require their
approval to do so.
10
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STRATEGY
We pursue a flexible investment program to achieve the Fund's objective. We are
not restricted to investments in specific market sectors. We may invest in any
market sector and in any size company if we have identified an opportunity with
attractive long-term prospects for capital growth. Nevertheless, we attempt to
match the dollar-weighted average capitalization of the Fund's holdings to the
midpoint capitalization of the S&P Mid-Cap 400 Index.
We consider many broad factors in assessing a potential candidate for
investment, including generally:
o competitive position within its industry o business prospects o
management team o record of earnings growth o underlying asset value
relative to industry peers o stock price relative to industry peers
o whether a reliable and liquid market for its shares exists.
11
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PRINCIPAL INVESTMENTS
The Fund normally owns stock in approximately 100 medium-sized companies at any
one time. It focuses primarily in stock and other securities with equity
characteristics such as trust or limited partnership interests, rights and
warrants.
[SIDEBAR: A RIGHT IS A PRIVILEGE GRANTED TO EXISTING SHAREHOLDERS OF A COMPANY
TO SUBSCRIBE TO SHARES OF A NEW ISSUE OF COMMON STOCK BELOW THE PUBLIC OFFERING
PRICE BEFORE IT IS OFFERED TO THE PUBLIC. A WARRANT ENTITLES THE HOLDER TO BUY A
CERTAIN AMOUNT OF COMMON STOCK AT A SPECIFIED PRICE, USUALLY HIGHER THAN THE
MARKET PRICE AT THE TIME THE WARRANT WAS ISSUED, WITHIN A SET TIME PERIOD.]
The Fund may also invest in convertible securities when it is more advantageous
than investing in a company's common stock.
[SIDEBAR: CONVERTIBLE SECURITIES ARE BONDS THAT GIVE PURCHASERS THE RIGHT OF
EXCHANGE FOR A SPECIFIED NUMBER OF SHARES OF A COMPANY'S COMMON STOCK AT
SPECIFIED PRICES WITHIN A CERTAIN PERIOD OF TIME. PURCHASERS RECEIVE REGULAR
INTEREST PAYMENTS UNTIL THEY EXERCISE THEIR EXCHANGE RIGHT.]
The Fund may also invest up to 25% of its assets in stocks and other securities
of companies based outside the United States. Under normal conditions, this
tactic would not comprise a major element of its strategy.
12
<PAGE>
INVESTMENT PROCESS
The Fund's process begins with a methodical search for companies (in any
industry) that show attractive long-term prospects for growth. The research team
relies on information gleaned from a variety of sources and perspectives,
including broad trends such as lifestyle and technological changes, industry
cycles and regulatory changes, quantitative screening and individual company
analysis. Companies are screened to identify those with strong business
fundamentals (i.e., high growth, low debt, high return-on-equity) and technical
strength. Measures of this strength include the extent of management's ownership
of a company's shares, the extent of ownership by mutual funds and other large
professional investors, estimates of future earnings by investment analysts who
follow the stock and the extent that actual earnings have deviated from
analysts' estimates in the recent past. The list of candidates is narrowed down
through meetings with company and industry contacts, attendance at conferences
focusing on emerging growth companies, and reviews of research and industry
publications and investment analyst contacts.
13
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TURNOVER
The annual portfolio turnover rate measures the frequency that the Portfolio
sells and replaces the value of its securities within one year. An annual
portfolio turnover rate of 100% means that the Portfolio sold and purchased
investments equal to the average value of the Portfolio for a given year. High
turnover can increase the Fund's transaction costs, thereby lowering its
returns. It may also increase your tax liability. The Fund does not have a
target portfolio turnover rate. Its turnover will depend on the Investment
Adviser's assessment of how often to trade, in light of market conditions and
the Fund's investment objective.
14
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RISKS
BELOW WE SET FORTH SOME OF THE PROMINENT RISKS ASSOCIATED WITH MID-CAP
INVESTING, AS WELL AS INVESTING IN GENERAL, AND WE DETAIL OUR APPROACHES TO
CONTAINING THEM. ALTHOUGH WE ATTEMPT TO ASSESS THE LIKELIHOOD THAT THESE RISKS
MAY ACTUALLY OCCUR AND TO LIMIT THEM, WE MAKE NO GUARANTEE THAT WE WILL SUCCEED.
PRIMARY RISKS
Market Risk
A risk that pervades all investing is the risk that the securities an investor
has selected will under perform to expectations.
The Fund follows a disciplined selling process to try to lessen this market
risk. First, we may sell a security if one or more of the following conditions
take place:
o There is a material change in the company's fundamentals; or o The
stock under performs its industry peer group by 15% or more; or o The
stock price reaches our expectation.
15
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Medium-Sized Company Risk
Medium-sized company stocks tend to experience steeper fluctuations in
price--down as well as up--than the stocks of larger companies. A shortage of
reliable information--the same information gap that creates opportunity--can
pose added risk. Industry-wide reversals have had a greater impact on them,
since they usually lack a large company's financial resources. Medium-sized
company stocks are typically less liquid than large company stocks: when things
are going poorly for a small- or medium-sized company, it is harder to find a
buyer for its shares.
SECONDARY RISK
Foreign Investment Risk
To the extent that the Fund holds companies based outside the United States, it
faces the risks inherent in foreign investing. Adverse political, economic or
social developments could undermine the value of the Fund's investments or
prevent the Fund from realizing their full value. Different accounting and
financial reporting standards, or less stringent enforcement of these standards,
could convey incomplete, inaccurate or misleading information about a company in
which the Fund invests. Finally, the currency of the country in which the Fund
has invested could decline relative to the value of the U.S. dollar, which would
depreciate the value of an investment itself to U.S. investors.
Year 2000 Risk
As with most businesses, the Fund faces the risk that the computer systems of
its Investment Adviser and other companies on which it relies for services or in
which it invests will not accommodate the changeovers necessary from dates in
the year 1999 to dates in the year 2000. We are working both internally and with
our business partners and service providers to address this problem. If we - or
our business partners, service providers, government agencies or other market
participants - do not succeed, it could materially affect shareholder services
or it could affect the value of the Fund's shares.
16
<PAGE>
TEMPORARY DEFENSIVE POSITION
For temporary defensive purposes, we may invest up to 100% of the Fund's assets
in the common stock of larger companies, in fixed-income securities, or
short-term money market securities. To the extent we find it necessary to invest
in such securities, the Fund may not meet its goal of long-term capital growth.
17
<PAGE>
MANAGEMENT OF THE FUND
Board of Trustees
The Fund's shareholders, voting in proportion to the number of shares each owns,
elects a Board of Trustees, and the Trustees supervise all the Fund's activities
on their behalf.
18
<PAGE>
Investment Adviser
Under the supervision of the Board of Trustees, Bankers Trust Company, with
headquarters at 130 Liberty Street, New York, New York 1006, acts as the Fund's
investment adviser, exercises day-to-day oversight and assumes responsibility
for the securities the Fund owns. Bankers Trust received a fee of [___]% of the
Fund's average daily net assets for its services in the last fiscal year.
As of September 30, 1998, Bankers Trust was the seventh largest bank holding
company in the United States with total assets of approximately $150 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 90 offices in more than 50 countries.
Bankers Trust's officers bring wide experience to managing both the Fund and its
Portfolio. The firm's own record dates back to its founding as a trust company
in 1903. It has invested retirement assets on behalf of the nation's largest
corporations and institutions for more than 50 years. Today, the assets under
its global management exceed $350 billion. The scope of the firm's capability is
broad: It is a leader in both the active and passive quantitative investment
disciplines and maintains a major presence in stock and bond markets worldwide.
19
<PAGE>
Portfolio Manager
Anthony Takazawa is responsible for the day-to-day management of the Fund's
investments:
o Vice President of Bankers Trust.
o Joined Bankers Trust and the Fund in 1996.
o Served as Portfolio Manager and Equity Analyst at Phoenix Mutual Life
Insurance Co. from 1988 to 1996.
o 10 years of investment experience.
o Bachelors degree in Business Administration from the University of
Notre Dame, MBA from the University of Wisconsin, Chartered Financial
Analyst.
20
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Other Services
Bankers Trust provides administrative services-such as portfolio accounting,
legal services and others-for the Fund. In addition, Bankers Trust-or your
broker or financial advisor-performs the functions necessary to establish and
maintain your account. In addition to setting up the account and processing your
purchase and sale orders, these functions include:
o keeping accurate, up-to-date records for your individual Fund account;
o implementing any changes you wish to make in your account information;
o processing your requests for cash dividends and distributions from
the Fund;
o answering your questions on the Fund's investment performance or
administration;
o sending proxy reports and updated prospectus information to you; and o
collecting your executed proxies and forwarding them to the Fund's
trustees.
Brokers and financial advisors may charge additional fees to investors only for
those services not otherwise included in the Bankers Trust servicing agreement,
such as cash management or special trust or retirement-investment reporting.
21
<PAGE>
CALCULATING THE FUND'S SHARE PRICE
We calculate the daily price of the Fund's shares (also known as the "Net Asset
Value" or "NAV") in accordance with the standard formula for valuing mutual fund
shares at the close of regular trading on the New York Stock Exchange every day
the Exchange is open for business.
[SIDEBAR: THE EXCHANGE IS OPEN EVERY WEEK, MONDAY THROUGH FRIDAY, EXCEPT WHEN
THE FOLLOWING HOLIDAYS ARE CELEBRATED: NEW YEAR'S DAY, MARTIN LUTHER KING, JR.
DAY (THE THIRD MONDAY IN JANUARY), PRESIDENTS' DAY (THE THIRD MONDAY IN
FEBRUARY), GOOD FRIDAY, MEMORIAL DAY (THE LAST MONDAY IN MAY), JULY 4TH, LABOR
DAY (THE FIRST MONDAY IN SEPTEMBER), THANKSGIVING DAY (THE FOURTH THURSDAY IN
NOVEMBER) AND CHRISTMAS DAY.]
The formula calls for deducting all of the Fund's liabilities from the total
value of its assets--the market value of the securities it holds, plus its cash
reserves--and dividing the result by the number of shares outstanding.
We value the securities in the Fund at their stated market value if price
quotations are available. When price quotes for a particular security are not
readily available, we determine their value by the method that most accurately
reflects their current worth in the judgment of the Board of Trustees. This
procedure implies an unavoidable risk, the risk that our prices are higher or
lower than the prices that the securities might actually command if we sold
them. If we have valued the securities too highly, you may end up paying too
much for Fund shares when you buy. If we underestimate their price, you may not
receive the full market value for your Fund shares when you sell.
You can find the Fund's daily share price in the mutual fund listings of most
major newspapers.
22
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DIVIDENDS AND DISTRIBUTIONS
If the Fund earns investment income, it is the Fund's policy to distribute to
shareholders substantially all of that taxable income quarterly and to
distribute any taxable net capital gains on an annual basis. You may elect to
receive your distributions in cash or reinvest them in additional shares in the
Fund.
23
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TAX CONSIDERATIONS
The Fund does not ordinarily pay income taxes. You and other shareholders pay
taxes on the income or capital gains from the Fund's holdings. Your taxes will
vary from year to year, based on the amount of capital gains distributions and
dividends paid out by the Fund. You owe the taxes whether you receive cash or
choose to have distributions and dividends reinvested. Distributions and
dividends usually create the following tax liability:
------------------------------------------------------------------
Transaction Tax Status
------------------------------------------------------------------
Income dividends Ordinary income
------------------------------------------------------------------
Short-term capital gains distributions Ordinary income
------------------------------------------------------------------
Long-term capital gains distributions Capital gains
------------------------------------------------------------------
Every year the Fund will send you information on the distributions for the
previous year. In addition, if you sell your Fund shares you may have a capital
gain or loss.
- ----------------------------------------------------------------------------
Transaction Tax Status
- ----------------------------------------------------------------------------
Your sale of shares owned more than one Capital gains or losses
year
- ----------------------------------------------------------------------------
Your sale of shares owned for one year or Gains treated as ordinary
less income; losses subject to
special rules.
- ----------------------------------------------------------------------------
The tax considerations for tax deferred accounts or non-taxable entities will be
different.
BECAUSE EACH INVESTOR'S TAX CIRCUMSTANCES ARE UNIQUE AND BECAUSE THE TAX LAWS
ARE SUBJECT TO CHANGE, WE RECOMMEND THAT YOU CONSULT YOUR TAX ADVISOR ABOUT YOUR
INVESTMENT.
24
<PAGE>
BUYING AND SELLING FUND SHARES
You can purchase or redeem shares in the Fund by mail, phone, wire or through an
authorized broker or financial advisor. Contact your broker or financial advisor
for details. You may also call the BT Service Center at 1-800-730-1313.
We may close your Fund account on 30 days' notice if it fails to meet minimum
balance requirements for any reason other than a change in market value. In
addition, if your sell order exceeds $250,000, we reserve the right to redeem it
"in kind" with a pro-rata distribution of stocks actually held by the Fund,
rather than in cash.
Exchange Privileges
You can exchange all or part of your shares for shares in another BT Mutual Fund
up to four times a year without paying a sales charge. Before buying shares
through an exchange you should be sure to get a copy of that fund's prospectus
and read it carefully. Please note also that you may have to pay taxes on the
shares you sell in the exchange.
25
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Account Minimums
The Fund requires a minimum investment of $2,500 to open accounts, $250 for
subsequent investments and a minimum balance of $1,000 to maintain them. It
requires a $500 minimum investment to open a retirement account, $100 for
subsequent investments, but imposes no minimum balance. Automatic investment
accounts, which credit money from your checking account to the purchase of Fund
shares monthly, bi-monthly, quarterly, or every six months, call for a minimum
$1,000 opening investment and at least $100 for each succeeding purchase of
shares.
THE FUND'S SHAREHOLDER GUIDE AND THE STATEMENT OF ADDITIONAL INFORMATION BOTH
CONTAIN COMPLETE INFORMATION ON BUYING AND SELLING FUND SHARES AND MAINTAINING A
FUND ACCOUNT. IF YOU HAVE NOT ALREADY RECEIVED A COPY OF THE SHAREHOLDER GUIDE
OR WISH TO OBTAIN A FREE COPY OF THE STATEMENT OF ADDITIONAL INFORMATION, PLEASE
CALL THE BT SERVICE CENTER AT 1-800-730-1313.
26
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FINANCIAL HIGHLIGHTS
The table below provides a picture of the Fund's financial performance for the
past five years. The information selected reflects financial results for a
single Fund share. The total returns in the table represent the rate of return
that an investor would have earned on an investment in the Fund (assuming
reinvestment of all interest income and distributions). This information has
been audited by _________________________, whose report, along with the Fund's
financial statements, is included in the Fund's annual report. The annual report
is available free of charge by calling the BT Service Center at 1-800-730-1313.
27
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<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 10/1/97 - 10/1/96 - 10/1/95 - 1/1/95 - 1/1/94 -
9/30/98 9/30/97 9/30/96 9/30/96(+) 12/31/94
- -------------------------------------------------------------------------------------------------------------------
<S><C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 15.23 $ 14.14 $ 10.14 $ 9.80
- -------------------------------------------------------------------------------------------------------------------
Income from Investment Operations (0.06) (0.05) (0.02) (0.03)
(Expenses in Excess of Investment
Income
- -------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gain 2.31 1.72 4.02 0.37
(Loss) on Investments Transactions ------- ------- ------- -------
- -------------------------------------------------------------------------------------------------------------------
Total Income (Loss) from 2.25 1.67 4.00 0.34
Investment operations
- -------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------------
Net Realized Gain from Investment (0.78) (0.58) -- --
Transactions
- -------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 16.70 $ 15.23 $ 14.14 $ 10.14
------- ------- ------- -------
- -------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN 15.82% 12.45% 39.45% 3.47%
- -------------------------------------------------------------------------------------------------------------------
Net assets, end of period $170,008 $157,568 $92,033 $29,973
(000s omitted)
- -------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
- -------------------------------------------------------------------------------------------------------------------
Expenses in Excess of Investment (0.39)% (0.42)% (0.38)%* (0.32)%
Income
- -------------------------------------------------------------------------------------------------------------------
Expenses 1.00% 1.00% 1.00%* 1.00%*
- -------------------------------------------------------------------------------------------------------------------
Decrease reflected in Above 0.20% 0.24% 0.33%* 0.46%
Expense Ratio Due to Absorption
of Expenses by Bankers Trust
- -------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate*** 188% 271%(++) 125% 157%
- -------------------------------------------------------------------------------------------------------------------
Average commission per share** $ 0.0341 $ 0.0554(++)
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(+) The Board of Trustees approved the change of the Fund's year end from
December 31 to September 30.
(++) Amounts were previously included in the Capital Appreciation Fund 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 that are charged a commission.
*** The portfolio turnover rate is the rate for the Master Portfolio in which
the Fund invests all its assets.
28
<PAGE>
BACK COVER
Additional information about the Fund's investments is available in the Fund's
annual and semi-annual reports to shareholders. In the Fund's annual report, you
will find a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year.
You can find more detailed information about the Fund in the current Statement
of Additional Information, dated [DATE], which we have filed electronically with
the Securities and Exchange Commission (SEC) and which is incorporated by
reference into this Prospectus. To receive your free copy of the Statement of
Additional Information, the annual or semi-annual report, or if you have
questions about investing in the Fund, write to us at:
BT SERVICE CENTER
P.O. BOX 419210
KANSAS CITY, MO 64141-6210
Or call our toll-free number: 1-800-730-1313
You can find reports and other information about the Fund on the SEC website
(http://www.sec.gov), or you can get copies of this information, after payment
of a duplicating fee, by writing to the Public Reference Section of the SEC,
Washington, DC 20549-6009. Information about the Fund, including its Statement
of Additional Information, can be reviewed and copied at the SEC's Public
Reference Room in Washington, DC. For information on the Public Reference Room,
call the SEC at 1-800-SEC-0330.
You can find information about buying and selling shares in the Fund in the
Shareholder Guide. If you have not already received a copy of the Guide, call
the BT Service Center to obtain one free of charge.
29
<PAGE>
EQUITY APPRECIATION FUND
BT Pyramid Mutual Funds
[BT's Investment Company Act file number]
30
Subject to Completion, Dated November __, 1998 STATEMENT OF
ADDITIONAL INFORMATION
January __, 1999
BT Pyramid Mutual Funds
BT Investment Equity Appreciation Fund
Investment Class
Advisor Class (not currently being offered)
BT Pyramid Mutual Funds (the "Trust") is an open-end management investment
company that offers investors a selection of investment portfolios, each having
distinct investment objectives and policies. This Statement of Additional
Information ("SAI") relates to BT Investment Equity Appreciation Fund (the
"Fund") which seeks long-term capital growth through investment primarily in
stocks and other securities with equity characteristics of medium-sized
companies with a strong growth potential.
The Fund has two classes of shares, the Investment Class and the Advisor Class
(each a "Class" and collectively the "Classes"). The Classes are sold by ICC
Distributors, Inc. ("ICC Distributors"), the Trust's Distributor, to clients and
customers (including affiliates and correspondents) of Bankers Trust Company
("Bankers Trust"), the Fund's investment adviser ("Adviser"), and to clients and
customers of other organizations.
This SAI is not a prospectus and is only authorized for distribution when
preceded or accompanied by the Investment Class' Prospectus dated January __,
1999. This SAI is intended to provide additional information regarding the
activities and operations of the Trust and should be read in conjunction with
the Prospectus. Each Prospectus provides the basic information investors should
know before investing. You may request a copy of a prospectus or a paper copy of
this SAI, if you have received it electronically, free of charge by calling the
Trust at the telephone number listed below or by contacting any Banker's Trust
service agent ("Service Agent"). Capitalized terms not otherwise defined in this
SAI have the meanings accorded to them in the Fund's Prospectus. The financial
statements for the Fund for the fiscal period ended September 30, 1998, are
incorporated herein by reference to the Annual Report to shareholders for the
Fund dated September 30, 1998. A copy of the Fund's Annual Report may be
obtained without charge by calling the Fund at the telephone number listed
below.
** 1 BANKERS TRUST COMPANY
Investment Adviser and Administrator
* 1 moved from here; text not shown
ICC DISTRIBUTORS, INC.
Distributor
Two Portland Square Portland, Maine 04101 1-800-730-1313
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TABLE OF CONTENTS
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS..............................1
Investment Objective......................................................1
Investment Policies.......................................................1
Additional Risk Factors..................................................10
Investment Restrictions..................................................12
Brokerage Commissions....................................................15
PERFORMANCE INFORMATION.....................................................16
Standard Performance Information.........................................16
Comparison of Fund Performance...........................................17
Economic and Market Information..........................................19
VALUATION OF SECURITIES; REDEMPTIONS AND PURCHASES IN KIND..................19
Purchase of Shares..........................................................20
Redemption of Shares........................................................22
Exchange Privilege.......................................................23
MANAGEMENT OF THE TRUST.....................................................23
Trustees of the Trust....................................................24
Trustee Compensation Table...............................................24
Administrator............................................................26
Distributor..............................................................26
Service Agent............................................................26
Custodian and Transfer Agent.............................................27
Use of Name..............................................................27
Banking Regulatory Matters...............................................27
Counsel and Independent Accountants......................................27
ORGANIZATION OF THE TRUST...................................................27
TAXATION....................................................................28
Taxation of the Fund.....................................................28
Foreign Securities.......................................................29
Distributions............................................................29
Other Taxation...........................................................29
FINANCIAL STATEMENTS........................................................29
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INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
Investment Objective
The Fund's investment objective is long term capital growth investment primarily
in stocks and other equity characteristics of medium-sized companies with a
strong growth potential. There can be no assurances that the investment
objective of the Fund will be achieved.
Investment Policies
The following is a discussion of the various investments of and techniques
employed by the Fund:
Equity Investments. The Fund invests primarily in common stock and other
securities with equity characteristics, such as trust or limited partnership
interests, rights and warrants. These investments may or may not pay dividends
and may or may not carry voting rights. The Fund may also invest in convertible
securities when, due to market conditions, it is more advantageous to obtain a
position in an attractive company by purchase of its convertible securities than
by purchase of its common stock. The convertible securities in which the Fund
invests may include any debt securities or preferred stock which may be
converted into common stock or which carries the right to purchase common stock.
Convertible securities entitle the holder to exchange the securities for a
specified number of shares of common stock, usually of the same company, at
specified prices within a certain period of time and to receive interest or
dividends until the holder elects to exercise the conversion privilege. Since
the Fund invests in both common stock and convertible securities, the risks of
the general equity markets may be tempered to a degree by the Fund's investments
in convertible securities which are often not as volatile as equity securities.
Short-Term Instruments. The Fund intends to stay invested in the securities
described above to the extent practical in light of its objective and long-term
investment perspective. However, the Fund's assets may be invested in short-term
instruments with remaining maturities of 397 days or less, or in money market
mutual funds, to meet anticipated redemptions and expenses or for day-to-day
operating purposes and up to 100% of its assets when, in Bankers Trust's
opinion, it is advisable to adopt a temporary defensive position because of
unusual and adverse conditions affecting the equity markets. In addition, when
the Fund experiences large cash inflows through the sale of securities, and
desirable equity securities that are consistent with the Fund's investment
objective are unavailable in sufficient quantities or at attractive prices, the
Fund may hold short-term investments for a limited time pending availability of
such equity securities. Short-term instruments consist of foreign and domestic:
(i) short-term obligations of sovereign governments, their agencies,
instrumentalities, authorities or political subdivisions; (ii) other short-term
debt securities rated Aa or higher by Moody's Investors Service, Inc. ("Moody's"
or AA or higher by Standard & Poor's Ratings Group ("S&P" or, if unrated, of
comparable quality in the opinion of Bankers Trust; (iii) commercial paper; (iv)
bank obligations, including negotiable certificates of deposit, time deposits
and bankers' acceptances; and (v) repurchase agreements. At the time the Fund
invests in commercial paper, bank obligations or repurchase agreements, the
issuer or the issuer's parent must have outstanding debt rated Aa or higher by
Moody's or AA or higher by S&P or outstanding commercial paper or bank
obligations rated Prime-1 by Moody's or A-1 by S&P ; or, if no such ratings are
available, the instrument must be of comparable quality in the opinion of
Bankers Trust. These instruments may be denominated in U.S. dollars or in
foreign currencies.
ADRs, GDRs and EDRs. American Depositary Receipts ("ADRs"), Global Depositary
Receipts ("GDRs"), and European Depositary Receipts ("EDRs") are certificates
evidencing ownership of shares of a foreign-based issuer held in trust by a bank
or similar financial institution. Designed for use in U.S., international and
European securities markets, respectively, ADRs, GDRs and EDRs are alternative
to the purchase of the underlying securities in their national markets and
currencies. ADRs, GDRs and EDRs are subject to the same risks as the foreign
securities to which they relate.
Illiquid Securities. Historically, illiquid securities have included
securities subject to contractual or legal restrictions on resale because they
have not been registered under the Securities Act of 1933, as amended (the
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"1933 Act"), securities which are otherwise not readily marketable and
repurchase agreements having a remaining maturity of longer than seven days.
Securities which have not been registered under the 1933 Act are referred to as
private placements or restricted securities and are purchased directly from the
issuer or in the secondary market. Mutual funds do not typically hold a
significant amount of these restricted or other illiquid securities because of
the potential for delays on resale and uncertainty in valuation. Limitations on
resale may have an adverse effect on the marketability of portfolio securities
and a mutual fund might be unable to dispose of restricted or other illiquid
securities promptly or at reasonable prices and might thereby experience
difficulty satisfying redemptions within seven days. A mutual fund might also
have to register such restricted securities in order to dispose of them
resulting in additional expense and delay. Adverse market conditions could
impede such a public offering of securities.
A large institutional market has developed for certain securities that are not
registered under the 1933 Act, including repurchase agreements, commercial
paper, foreign securities, municipal securities and corporate bonds and notes.
Institutional investors depend on an efficient institutional market in which the
unregistered security can be readily resold or on an issuer's ability to honor a
demand for repayment. The fact that there are contractual or legal restrictions
on resale of such investments to the general public or to certain institutions
may not be indicative of their liquidity.
The Securities and Exchange Commission (the "SEC") has adopted Rule 144A, which
allows a broader institutional trading market for securities otherwise subject
to restriction on their resale to the general public. Rule 144A establishes a
"safe harbor" from the registration requirements of the 1933 Act of resales of
certain securities to qualified institutional buyers. The Adviser anticipates
that the market for certain restricted securities such as institutional
commercial paper will expand further as a result of this regulation and the
development of automated systems for the trading, clearance and settlement of
unregistered securities of domestic and foreign issuers, such as the PORTAL
System sponsored by the National Association of Securities Dealers, Inc.
Rule 144A Securities are securities in the United States that are not registered
for sale under federal securities laws but which can be resold to institutions
under SEC Rule 144A. Provided that a dealer or institutional trading market in
such securities exists, these restricted securities are treated as exempt from
the 15% limit on illiquid securities. Under the supervision of the Board of
Trustees of the Portfolio, the Adviser determines the liquidity of restricted
securities and, through reports from the Adviser, the Board will monitor trading
activity in restricted securities. If institutional trading in restricted
securities were to decline, the liquidity of the Fund could be adversely
affected.
In reaching liquidity decisions, the Adviser will consider, among other things,
the following factors: (1) the frequency of trades and quotes for the security;
(2) the number of dealers and other potential purchasers or sellers of the
security; (3) dealer undertakings to make a market in the security and (4) the
nature of the security and of the marketplace trades (e.g., the time needed to
dispose of the security, the method of soliciting offers and the mechanics of
the transfer).
When-Issued and Delayed Delivery Securities. The Fund may purchase securities on
a when-issued or delayed delivery basis. Delivery of and payment for these
securities may take place as long as a month or more after the date of the
purchase commitment. The value of these securities is subject to market
fluctuations during this period and no income accrues to the Fund until
settlement takes place. The Fund maintains with the Custodian a segregated
account containing cash or liquid securities in an amount at least equal to
these commitments.
Investment in other Investment Companies. With respect to certain countries in
which capital markets are either less developed or not easily accessed,
investments by the Fund may be made through investment in other investment
companies that in turn are authorized to invest in the securities of such
countries. Investment in other investment companies is limited in amount by the
Investment Company Act of 1940, as amended (the "1940 Act"), will involve the
indirect payment of a portion of the expenses, including advisory fees, of such
other investment companies and may result in a duplication of fees and expenses.
Lending of Portfolio Securities. The Fund has the authority to lend up to 30% of
the total value of its portfolio securities to brokers, dealers and other
financial organizations. The Fund will not lend securities to Bankers Trust, ICC
Distributors or their affiliates. By lending its securities, the Fund can
increase its income
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by continuing to receive interest on the loaned securities as well as by either
investing the cash collateral in short-term securities or obtaining yield in the
form of interest paid by the borrower when U.S. government obligations are used
as collateral. During the term of the loan, the Fund continues to bear the risk
of fluctuation in the price of the loaned securites. There may be risks of delay
in receiving additional collateral or risks of delay in recovery of the
securities or even loss of rights in the collateral should the borrower of the
securities fail financially. The Fund will adhere to the following conditions
whenever its securities are loaned: (i) the Fund must receive at least 100
percent cash collateral or equivalent securities from the borrower; (ii) the
borrower must increase this collateral whenever the market value of the
securities including accrued interest rises above the level of the collateral;
(iii) the Fund must be able to terminate the loan at any time; (iv) the Fund
must receive reasonable interest on the loan, as well as any dividends, interest
or other distributions on the loaned securities, and any increase in market
value; (v) the Fund may pay only reasonable custodian fees in connection with
the loan; and (vi) voting rights on the loaned securities may pass to the
borrower; provided, however, that if a material event adversely affecting the
investment occurs, the Board of Trustees must terminate the loan and regain the
right to vote the securities.
Repurchase Agreements. In a repurchase agreement the Fund buys a security and
simultaneously agrees to sell it back at a higher price at a future date. In the
event of the bankruptcy of the other party to either a repurchase agreement or a
securities loan, the Fund could experience delays in recovering either its cash
or the securities it lent. To the extent that, in the meantime, the value of the
securities repurchased had decreased or the value of the securities lent had
increased, the Fund could experience a loss. In all cases, Bankers Trust must
find the creditworthiness of the other party to the transaction satisfactory. A
repurchase agreement is considered a collateralized loan under the 1940 Act.
Derivatives. The Fund may invest in various instruments that are commonly known
as "derivatives." Generally, a derivative is a financial arrangement, the value
of which is based on, or "derived" from, a traditional security, asset, or
market index. Some derivatives such as mortgage-related and other asset-backed
securities are in many respects like any other investment, although they may be
more volatile or less liquid than more traditional debt securities. There are,
in fact, many different types of derivatives and many different ways to use
them. There are a range of risks associated with those uses. Futures and options
are commonly used for traditional hedging purposes to attempt to protect a fund
from exposure to changing interest rates, securities prices, or currency
exchange rates and as a low cost method of gaining exposure to a particular
securities market without investing directly in those securities. However, some
derivatives are used for leverage, which tends to magnify the effects of an
instrument's price changes as market conditions change. Leverage involves the
use of a small amount of money to control a large amount of financial assets,
and can in some circumstances, lead to significant losses. The Adviser will use
derivatives only in circumstances where they offer the most efficient means of
improving the risk/reward profile of the Fund and when consistent with the
Fund's investment objective and policies. The use of derivatives for non-hedging
purposes may be considered speculative.
Options on Securities. The Fund may write and purchase put and call options on
stocks. A call option gives the purchaser of the option the right to buy, and
obligates the writer to sell, the underlying stock at the exercise price at any
time during the option period. Similarly, a put option gives the purchaser of
the option the right to sell, and obligates the writer to buy, the underlying
stock at the exercise price at any time during the option period. The Fund may
also write (sell) covered call and put options to a limited extent on its
portfolio securities ("covered options") in an attempt to increase income.
However, the Fund may forgo the benefits of appreciation on securities sold or
may pay more than the market price on securities acquired pursuant to call and
put options written by the Fund.
** 2 When the Fund writes a covered call option, it gives the purchaser of the
option the right to buy the underlying security at the price specified in the
option (the "exercise price") by exercising the option at any time during the
option period. If the option expires unexercised, the Fund will realize income
in an amount equal to the premium received for writing the option. If the option
is exercised, a decision over which the Fund has no control, the Fund must sell
the underlying security to the option holder at the exercise price. By writing a
covered call option, the Fund forgoes, in exchange for the premium less the
commission ("net premium"), the opportunity to profit during the option period
from an increase in the market value of the
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underlying security above the exercise price. In addition the Fund may continue
to hold a stock which might otherwise have been sold to protect against
depreciation in the market price of the stock.
A put option sold by the Fund is covered when, among other things, cash or
securities acceptable to the broker are placed in a segregated account to
fulfill the obligations undertaken.
** 3 When the Fund writes a covered put option, it gives the purchaser of the
option the right to sell the underlying security to the Fund at the specified
exercise price at any time during the option period. If the option expires
unexercised, the Fund will realize income in the amount of the premium received
for writing the option. If the put option is exercised, a decision over which
the Fund has no control, the Fund must purchase the underlying security from the
option holder at the exercise price. By writing a covered put option, the Fund,
in exchange for the net premium received, accepts the risk of a decline in the
market value of the underlying security below the exercise price. The Fund will
only write put options involving securities for which a determination is made at
the time the option is written that the Fund wishes to acquire the securities at
the exercise price.
** 4 The Fund may terminate its obligation as the writer of a call or put option
by purchasing an option with the same exercise price and expiration date as the
option previously written. This transaction is called a "closing purchase
transaction." The Fund will realize a profit or loss for a closing purchase
transaction if the amount paid to purchase an option is less or more, as the
case may be, than the amount received from the sale thereof. To close out a
position as a purchaser of an option, the Fund, may make a "closing sale
transaction" which involves liquidating the Fund's position by selling the
option previously purchased. Where the Fund cannot effect a closing purchase
transaction, it may be forced to incur brokerage commissions or dealer spreads
in selling securities it receives or it may be forced to hold underlying
securities until an option is exercised or expires.
** 5 When the Fund writes an option, an amount equal to the net premium received
by the Fund is included in the liability section of the Fund's Statement of
Assets and Liabilities as a deferred credit. The amount of the deferred credit
will be subsequently marked to market to reflect the current market value of the
option written. The current market value of a traded option is the last sale
price or, in the absence of a sale, the mean between the closing bid and asked
price. If an option expires on its stipulated expiration date or if the Fund
enters into a closing purchase transaction, the Fund will realize a gain (or
loss if the cost of a closing purchase transaction exceeds the premium received
when the option was sold), and the deferred credit related to such option will
be eliminated. If a call option is exercised, the Fund will realize a gain or
loss from the sale of the underlying security and the proceeds of the sale will
be increased by the premium originally received. The writing of covered call
options may be deemed to involve the pledge of the securities against which the
option is being written. Securities against which call options are written will
be segregated on the books of the custodian for the Fund.
** 6 The Fund may purchase call and put options on any securities in which it
may invest. The Fund would normally purchase a call option in anticipation of an
increase in the market value of such securities. The purchase of a call option
would entitle the Fund, in exchange for the premium paid, to purchase a security
at a specified price during the option period. The Fund would ordinarily have a
gain if the value of the securities increased above the exercise price
sufficiently to cover the premium and would have a loss if the value of the
securities remained at or below the exercise price during the option period.
** 7 The Fund would normally purchase put options in anticipation of a decline
in the market value of securities in its portfolio ("protective puts") or
securities of the type in which it is permitted to invest. The purchase of a put
option would entitle the Fund, in exchange for the premium paid, to sell a
security, which may or may not be held in the Fund's holdings, at a specified
price during the option period. The purchase of protective puts is designed
merely to offset or hedge against a decline in the market value of the Fund's
holdings. Put options also may be purchased by the Fund for the purpose of
affirmatively benefiting from a decline in the price of securities which the
Fund does not own. The Fund would ordinarily recognize a gain if the value of
the securities decreased below the exercise price sufficiently to cover the
premium and would recognize a loss if the value of the securities remained at or
above the exercise price. Gains and losses on the purchase of protective put
options would tend to be offset by countervailing changes in the value of
underlying portfolio securities.
** 8 The hours of trading for options on securities may not conform to the hours
during which the underlying securities are traded. To the extent that the option
markets close before the markets for the underlying securities, significant
price and rate movements can take place in the underlying securities markets
that
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cannot be reflected in the option markets. It is impossible to predict the
volume of trading that may exist in such options, and there can be no assurance
that viable exchange markets will develop or continue.
** 9 The Fund may engage in over-the-counter options transactions with
broker-dealers who make markets in these options. At present, approximately ten
broker-dealers, including several of the largest primary dealers in U.S.
government securities, make these markets. The ability to terminate
over-the-counter option positions is more limited than with exchange-traded
option positions because the predominant market is the issuing broker rather
than an exchange, and may involve the risk that broker-dealers participating in
such transactions will not fulfill their obligations. To reduce this risk, the
Fund will purchase such options only from broker-dealers who are primary
government securities dealers recognized by the Federal Reserve Bank of New York
and who agree to (and are expected to be capable of) entering into closing
transactions, although there can be no guarantee that any such option will be
liquidated at a favorable price prior to expiration. The Adviser will monitor
the creditworthiness of dealers with which the Fund enters into such options
transactions under the general supervision of the Fund's Trustees. The Fund
intends to treat OTC Options purchased and the assets used to "cover" OTC
Options written as not readily marketable and therefore subject to the
limitations described in "Investment Restrictions."
** 10 Options on Securities Indices. In addition to options on securities, the
Fund may also purchase and write (sell) call and put options on securities
indices. Such options give the holder the right to receive a cash settlement
during the term of the option based upon the difference between the exercise
price and the value of the index. Such options will be used for the purposes
described above under "Options on Securities."
The Fund may, to the extent allowed by federal and state securities laws, invest
in securities indices instead of investing directly in individual foreign
securities.
** 11 Options on securities indices entail risks in addition to the risks of
options on securities. The absence of a liquid secondary market to close out
options positions on securities indices is more likely to occur, although the
Fund generally will only purchase or write such an option if the Adviser
believes the option can be closed out.
** 12 Use of options on securities indices also entails the risk that trading in
such options may be interrupted if trading in certain securities included in the
index is interrupted. The Fund will not purchase such options unless the Adviser
believes the market is sufficiently developed such that the risk of trading in
such options is no greater than the risk of trading in options on securities.
** 13 Price movements in the Fund's holdings may not correlate precisely with
movements in the level of an index and, therefore, the use of options on indices
cannot serve as a complete hedge. Because options on securities indices require
settlement in cash, the Adviser may be forced to liquidate portfolio securities
to meet settlement obligations.
Futures Contracts and Options on Futures Contracts
General. The successful use of such instruments draws upon the Adviser's skill
and experience with respect to such instruments and usually depends on the
Adviser's ability to forecast interest rate and currency exchange rate movements
correctly. Should interest or exchange rates move in an unexpected manner, the
Fund may not achieve the anticipated benefits of futures contracts or options on
futures contracts or may realize losses and thus will be in a worse position
than if such strategies had not been used. In addition, the correlation between
movements in the price of futures contracts or options on futures contracts and
movements in the price of the securities and currencies hedged or used for cover
will not be perfect and could produce unanticipated losses.
Futures Contracts. The Fund may enter into contracts for the purchase or sale
for future delivery of fixed-income securities, or contracts based on financial
indices including any index of U.S. Government Securities, foreign government
securities or corporate debt securities. U.S. futures contracts have been
designed by exchanges which have been designated "contracts markets" by the
Commodity Futures Trading Commission ("CFTC"), and must be executed through a
futures commission merchant, or brokerage firm, which is a member of the
relevant contract market. Futures contracts trade on a number of exchange
markets, and, through their clearing corporations, the exchanges guarantee
performance of the contracts as between the clearing members of the exchange.
The Fund may enter into futures contracts which are based on debt securities
that are backed by the full faith and credit of the U.S. government, such as
long-term U.S. Treasury Bonds, Treasury Notes, government National Mortgage
Association modified pass-through mortgage-backed
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securities and three-month U.S. Treasury Bills. The Fund may also enter into
futures contracts which are based on bonds issued by entities other than the
U.S. government.
At the same time a futures contract is purchased or sold, the Fund must allocate
cash or securities as a deposit payment ("initial deposit"). It is expected that
the initial deposit would be approximately 1 1/2% to 5% of a contract's face
value. Daily thereafter, the futures contract is valued and the payment of
"variation margin" may be required, since each day the Fund would provide or
receive cash that reflects any decline or increase in the contract's value.
At the time of delivery of securities pursuant to such a contract, adjustments
are made to recognize differences in value arising from the delivery of
securities with a different interest rate from that specified in the contract.
In some (but not many) cases, securities called for by a futures contract may
not have been issued when the contract was written.
Although futures contracts by their terms call for the actual delivery or
acquisition of securities, in most cases the contractual obligation is fulfilled
before the date of the contract without having to make or take delivery of the
securities. The offsetting of a contractual obligation is accomplished by buying
(or selling, as the case may be) on a commodities exchange an identical futures
contract calling for delivery in the same month. Such a transaction, which is
effected through a member of an exchange, cancels the obligation to make or take
delivery of the securities. Since all transactions in the futures market are
made, offset or fulfilled through a clearinghouse associated with the exchange
on which the contracts are traded, the Fund will incur brokerage fees when it
purchases or sells futures contracts.
The purpose of the acquisition or sale of a futures contract, in cases where the
Fund holds or intends to acquire fixed-income securities, is to attempt to
protect the Fund from fluctuations in interest or foreign exchange rates without
actually buying or selling fixed-income securities or foreign currencies. For
example, if interest rates were expected to increase, the Fund might enter into
futures contracts for the sale of debt securities. Such a sale would have much
the same effect as selling an equivalent value of the debt securities owned by
the Fund. If interest rates did increase, the value of the debt security in the
Fund would decline, but the value of the futures contracts to the Fund would
increase at approximately the same rate, thereby keeping the net asset value of
the Fund from declining as much as it otherwise would have. The Fund could
accomplish similar results by selling debt securities and investing in bonds
with short maturities when interest rates are expected to increase. However,
since the futures market is more liquid than the cash market, the use of futures
contracts as an investment technique allows the Fund to maintain a defensive
position without having to sell its portfolio securities.
Similarly, when it is expected that interest rates may decline, futures
contracts may be purchased to attempt to hedge against anticipated purchases of
debt securities at higher prices. Since the fluctuations in the value of futures
contracts should be similar to those of debt securities, the Fund could take
advantage of the anticipated rise in the value of debt securities without
actually buying them until the market had stabilized. At that time, the futures
contracts could be liquidated and the Fund could then buy debt securities on the
cash market. To the extent the Fund enters into futures contracts for this
purpose, the assets in the segregated asset account maintained to cover the
Fund's obligations with respect to such futures contracts will consist of cash
or securities acceptable to the broker from its portfolio in an amount equal to
the difference between the fluctuating market value of such futures contracts
and the aggregate value of the initial and variation margin payments made by the
Fund with respect to such futures contracts.
The ordinary spreads between prices in the cash and futures market, due to
differences in the nature of those markets, are subject to distortions. First,
all participants in the futures market are subject to initial deposit and
variation margin requirements. Rather than meeting additional variation margin
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced, thus producing distortion. Third, from
the point of view of speculators, the margin deposit requirements in the futures
market are less onerous than margin requirements in the securities market.
Therefore, increased participation by speculators in the futures market may
cause temporary price distortions. Due to the possibility of distortion, a
correct forecast of general interest rate trends by the Adviser may still not
result in a successful transaction.
In addition, futures contracts entail risks. Although the Adviser believes that
use of such contracts will benefit the Fund, if the Adviser's investment
judgment about the general direction of interest rates is incorrect, the Fund's
overall performance would be poorer than if it had not entered into any such
contract. For example, if
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the Fund has hedged against the possibility of an increase in interest rates
which would adversely affect the price of debt securities held in its portfolio
and interest rates decrease instead, the Fund will lose part or all of the
benefit of the increased value of its debt securities which it has hedged
because it will have offsetting losses in its futures positions. In addition, in
such situations, if the Fund has insufficient cash, it may have to sell debt
securities from its portfolio to meet daily variation margin requirements. Such
sales of bonds may be, but will not necessarily be, at increased prices which
reflect the rising market. The Fund may have to sell securities at a time when
it may be disadvantageous to do so.
Options on Futures Contracts. The Fund may purchase and write options on futures
contracts for hedging purposes. The purchase of a call option on a futures
contract is similar in some respects to the purchase of a call option on an
individual security. Depending on the pricing of the option compared to either
the price of the futures contract upon which it is based or the price of the
underlying debt securities, it may or may not be less risky than ownership of
the futures contract or underlying debt securities. As with the purchase of
futures contracts, when the Fund is not fully invested it may purchase a call
option on a futures contract to hedge against a market advance due to declining
interest rates.
The writing of a call option on a futures contract constitutes a partial hedge
against declining prices of the underlying security or foreign currency which is
deliverable upon exercise of the futures contract. If the futures price at
expiration of the option is below the exercise price, the Fund will retain the
full amount of the option premium which provides a partial hedge against any
decline that may have occurred in the Fund's holdings. The writing of a put
option on a futures contract constitutes a partial hedge against increasing
prices of the underlying security or foreign currency which is deliverable upon
exercise of the futures contract. If the futures price at expiration of the
option is higher than the exercise price, the Fund will retain the full amount
of the option premium which provides a partial hedge against any increase in the
price of securities which the Fund intends to purchase. If a put or call option
the Fund has written is exercised, the Fund will incur a loss which will be
reduced by the amount of the premium it receives. Depending on the degree of
correlation between changes in the value of its portfolio securities and changes
in the value of its futures positions, the Fund's losses from existing options
on futures may to some extent be reduced or increased by changes in the value of
portfolio securities.
The purchase of a put option on a futures contract is similar in some respects
to the purchase of protective put options on portfolio securities. For example,
the Fund may purchase a put option on a futures contract to hedge its portfolio
against the risk of rising interest rates.
The amount of risk the Fund assumes when it purchases an option on a futures
contract is the premium paid for the option plus related transaction costs. In
addition to the correlation risks discussed above, the purchase of an option
also entails the risk that changes in the value of the underlying futures
contract will not be fully reflected in the value of the option purchased.
The Board of Trustees has adopted the requirement that futures contracts and
options on futures contracts be used as a hedge and may also use stock index
futures on a continual basis to equitize cash so that the fund may maintain 100%
equity exposure. In addition to this requirement, the Board of Trustees has also
adopted a restriction that the Fund will not enter into any futures contracts or
options on futures contracts if immediately thereafter the amount of margin
deposits on all the futures contracts of the Fund and premiums paid on
outstanding options on futures contracts owned by the Fund (other than those
entered into for bona fide hedging purposes) would exceed 5% of the Portfolio's
net asset value, after taking into account unrealized profits and unrealized
losses on any such contracts.
Futures Contracts on Stock Indices. The Fund may enter into contracts providing
for the making and acceptance of a cash settlement based upon changes in the
value of an index of securities ("Futures Contracts"). This investment technique
is designed only to hedge against anticipated future change in general market
prices which otherwise might either adversely affect the value of securities
held by the Fund or adversely affect the prices of securities which are intended
to be purchased at a later date for the Fund. A Futures Contract may also be
entered into to close out or offset an existing futures position. In general,
each transaction in Futures Contracts involves the establishment of a position
which will move in a direction opposite to that of the investment being hedged.
If these hedging transaction are successful, the futures positions taken for the
Fund will rise in value by amount which approximately offsets the decline in
value of the portion of the Fund's investments that are being hedged. Should
general market prices move in an unexpected manner, the full anticipated
benefits of Futures Contracts may not be achieved or a loss may be realized.
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Although Futures Contracts would be entered into for hedging purposes only, such
transactions do involve certain risks. These risks could include a lack of
correlation between the Futures Contract and the equity market being hedged, a
potential lack of liquidity in the secondary market and incorrect assessments of
market trends which may result in poorer overall performance than if a Futures
Contract had not been entered into. Brokerage costs will be incurred and
"margin" will be required to be posted and maintained as a good-faith deposit
against performance of obligations under Futures Contracts written for the Fund.
The Fund may not purchase or sell a Futures Contract if immediately thereafter
its margin deposits on its outstanding Futures contracts would exceed 5% of the
market value of the Fund's total assets.
Options on Foreign Currencies. The Fund may purchase and write options on
foreign currencies for hedging purposes in a manner similar to that in which
futures contracts on foreign currencies, or forward contracts, will be utilized.
For example, a decline in the dollar value of a foreign currency in which
portfolio securities are denominated will reduce the dollar value of such
securities, even if their value in the foreign currency remains constant. In
order to protect against such diminutions in the value of portfolio securities,
the Fund may purchase put options on the foreign currency. If the value of the
currency does decline, the Fund will have the right to sell such currency for a
fixed amount in dollars and will thereby offset, in whole or in part, the
adverse effect on its portfolio which otherwise would have resulted.
Conversely, where a rise in the dollar value of a currency in which securities
to be acquired are denominated is projected, thereby increasing the cost of such
securities, the Fund may purchase call options thereon. The purchase of such
options could offset, at least partially, the effects of the adverse movements
in exchange rates. As in the case of other types of options, however, the
benefit to the Fund deriving from purchases of foreign currency options will be
reduced by the amount of the premium and related transaction costs. In addition,
where currency exchange rates do not move in the direction or to the extent
anticipated, the Fund could sustain losses on transactions in foreign currency
options which would require it to forego a portion or all of the benefits of
advantageous changes in such rates.
The Fund may write options on foreign currencies for the same types of hedging
purposes. For example, where the Fund anticipates a decline in the dollar value
of foreign currency denominated securities due to adverse fluctuations in
exchange rates it could, instead of purchasing a put option, write a call option
on the relevant currency. If the expected decline occurs, the options will most
likely not be exercised, and the diminution in value of portfolio securities
will be offset by the amount of the premium received.
Similarly, instead of purchasing a call option to hedge against an anticipated
increase in the dollar cost of securities to be acquired, the Fund could write a
put option on the relevant currency which, if rates move in the manner
projected, will expire unexercised and allow the Fund to hedge such increased
cost up to the amount of the premium. As in the case of other types of options,
however, the writing of a foreign currency option will constitute only a partial
hedge up to the amount of the premium, and only if rates move in the expected
direction. If this does not occur, the option may be exercised and the Fund
would be required to purchase or sell the underlying currency at a loss which
may not be offset by the amount of the premium. Through the writing of options
on foreign currencies, the Fund also may be required to forego all or a portion
of the benefits which might otherwise have been obtained from favorable
movements in exchange rates.
The Fund may write covered call options on foreign currencies. A call option
written on a foreign currency by the Fund is "covered" if the Fund owns the
underlying foreign currency covered by the call or has an absolute and immediate
right to acquire that foreign currency without additional cash consideration (or
for additional cash consideration held in a segregated account by its Custodian)
upon conversion or exchange of other foreign currency held in its portfolio. A
call option is also covered if the Fund has a call on the same foreign currency
and in the same principal amount as the call written where the exercise price of
the call held (a) is equal to or less than the exercise price of the call
written or (b) is greater than the exercise price of the call written if the
difference is maintained by the Fund in cash or securities acceptable to the
broker in a segregated account with its custodian.
The Fund also may write call options on foreign currencies that are not covered
for cross-hedging purposes. A call option on a foreign currency is for
cross-hedging purposes if it is not covered, but is designed to provide a hedge
against a decline in the U.S. dollar value of a security which the Fund owns or
has the right to acquire and which is denominated in the currency underlying the
option due to an adverse change in the exchange rate. In such circumstances, the
Fund collateralizes the option by maintaining in a segregated account with its
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custodian, cash or securities acceptable to the broker in an amount not less
than the value of the underlying foreign currency in U.S. dollars marked to
market daily.
There is no assurance that a liquid secondary market on an options exchange will
exist for any particular option, or at any particular time. If the Fund is
unable to effect a closing purchase transaction with respect to covered options
it has written, the Fund will not be able to sell the underlying currency or
dispose of assets held in a segregated account until the options expire or are
exercised. Similarly, if the Fund is unable to effect a closing sale transaction
with respect to options it has purchased, it would have to exercise the options
in order to realize any profit and will incur transaction costs upon the
purchase or sale of underlying currency. The Fund pays brokerage commissions or
spreads in connection with its options transactions.
As in the case of forward contracts, certain options on foreign currencies are
traded over-the-counter and involve liquidity and credit risks which may not be
present in the case of exchange-traded currency options. The Fund's ability to
terminate over-the-counter options ("OTC Options") will be more limited than
with exchange-traded options. It is also possible that broker-dealers
participating in OTC Options transactions will not fulfill their obligations.
Until such time as the staff of the SEC changes its position, the Fund will
treat purchased OTC Options and assets used to cover written OTC Options as
illiquid securities. With respect to options written with primary dealers in
U.S. Government securities pursuant to an agreement requiring a closing purchase
transaction at a formula price, the amount of illiquid securities may be
calculated with reference to the repurchase formula.
All options that the Fund writes will be covered under applicable requirements
of the SEC. The Fund will write and purchase options only to the extent
permitted by the policies of state securities authorities in states where Shares
are qualified for offer and sale.
There can be no assurance that the use of these portfolio strategies will be
successful.
** 14 Currency Exchange Transactions. Because the Fund may buy and sell
securities denominated in currencies other than the U.S. dollar and receives
interest, dividends and sale proceeds in currencies other than the U.S. dollar,
the Fund from time to time may enter into currency exchange transactions to
convert to and from different foreign currencies and to convert foreign
currencies to and from the U.S. dollar. The Fund either enters into these
transactions on a spot (i.e., cash) basis at the spot rate prevailing in the
foreign currency exchange market or uses forward contracts to purchase or sell
foreign currencies.
Forward Currency Exchange Transactions. Because the Fund may buy and sell
securities denominated in currencies other than the U.S. dollar and receives
interest, dividends and sale proceeds in currencies other than the U.S. dollar,
the Fund from time to time may enter into currency exchange transactions to
convert to and from different currencies and to convert currencies to and from
the U.S. dollar. The Fund either enters into these transactions on a spot (i.e.,
cash) basis at the spot rate prevailing in the currency exchange market or uses
forward contracts to purchase or sell currencies.
** 15 A forward currency exchange contract is an obligation by the Fund to
purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract. Forward currency exchange
contracts establish an exchange rate at a future date. These contracts are
transferable in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. A forward currency
exchange contract generally has no deposit requirement and is traded at a net
price without commission. The Fund maintains with its custodian a segregated
account of cash or liquid securities in an amount at least equal to its
obligations under each forward foreign currency exchange contract. Neither spot
transactions nor forward currency exchange contracts eliminate fluctuations in
the prices of the Fund's securities or in foreign exchange rates, or prevent
loss if the prices of these securities should decline.
** 16 The Fund may enter into foreign currency hedging transactions in an
attempt to protect against changes in foreign currency exchange rates between
the trade and settlement dates of specific securities transactions or changes in
foreign currency exchange rates that would adversely affect the portfolio
position or an anticipated investment position. Since consideration of the
prospect for currency parities will be incorporated into Bankers Trust's
long-term investment decisions, the Fund will not routinely enter into foreign
currency hedging transactions with respect to security transactions; however,
Bankers Trust believes that it is important to have
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the flexibility to enter into foreign currency hedging transactions when it
determines that the transactions would be in the Fund's best interest. Although
these transactions tend to minimize the risk of loss due to a decline in the
value of the hedged currency, at the same time they tend to limit any potential
gain that might be realized should the value of the hedged currency increase.
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible because the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of such securities between the date the forward contract
is entered into and the date it matures. The projection of currency market
movements is extremely difficult, and the successful execution of a hedging
strategy is highly uncertain.
Asset Coverage. To assure that the Fund's use of futures and related options, as
well as when-issued and delayed-delivery securities and foreign currency
exchange transactions, are not used to achieve investment leverage, the Fund
will cover such transactions, as required under applicable interpretations of
the SEC, either by owning the underlying securities or by segregating with the
Fund's Custodian or futures commission merchant liquid securities in an amount
at all times equal to or exceeding the Fund's commitment with respect to these
instruments or contracts.
** 17 Certificates of Deposit and Bankers' Acceptances. Certificates of deposit
are receipts issued by a depository institution in exchange for the deposit of
funds. The issuer agrees to pay the amount deposited plus interest to the bearer
of the receipt on the date specified on the certificate. The certificate usually
can be traded in the secondary market prior to maturity. Bankers' acceptances
typically arise from short-term credit arrangements designed to enable
businesses to obtain funds to finance commercial transactions. Generally, an
acceptance is a time draft drawn on a bank by an exporter or an importer to
obtain a stated amount of funds to pay for specific merchandise. The draft is
then "accepted" by a bank that, in effect, unconditionally guarantees to pay the
face value of the instrument on its maturity date. The acceptance may then be
held by the accepting bank as an earning asset or it may be sold in the
secondary market at the going rate of discount for a specific maturity. Although
maturities for acceptances can be as long as 270 days, most acceptances have
maturities of six months or less.
** 18 Commercial Paper. Commercial paper consists of short-term (usually from 1
to 270 days) unsecured promissory notes issued by corporations in order to
finance their current operations. A variable amount master demand note (which is
a type of commercial paper) represents a direct borrowing arrangement involving
periodically fluctuating rates of interest under a letter agreement between a
commercial paper issuer and an institutional lender pursuant to which the lender
may determine to invest varying amounts.
For a description of commercial paper ratings, see Appendix.
Additional Risk Factors
In addition to the risks discussed above, the Fund's investments may be subject
to the following risk factors:
Foreign Securities. In seeking its investment objectives, the Fund may invest in
securities of foreign issuers. Foreign securities may involve a higher degree of
risk and may be less liquid or more volatile than domestic investments. Foreign
securities usually are denominated in foreign currencies, which means their
value will be affected by changes in the strength of foreign currencies relative
to the U.S. dollar as well as the other factors that affect security prices.
Foreign companies may not be subject to accounting standards or governmental
supervision comparable to U.S. companies, and there often is less publicly
available information about their operations. Generally, there is less
governmental regulation of foreign securities markets, and security trading
practices abroad may offer less protection to investors such as the Fund. The
value of such investments may be adversely affected by the changes in political
or social conditions, diplomatic relations, confiscatory taxation,
expropriation, nationalization, limitation on the removal of funds or assets, or
imposition of (or change in) exchange control or tax regulations in those
foreign countries. Additional risks of foreign securities include settlement
delays and costs, difficulties in obtaining and enforcing judgments, and
taxation of dividends at the source of payment. The Fund will not invest more
than 5% of the value of its total assets in the securities of issuers based in
developing countries, including Eastern Europe.
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Options on Futures Contracts, Forward Contracts and Options on Foreign
Currencies. Unlike transactions entered into by the Fund in futures contracts,
options on foreign currencies and forward contracts are not traded on contract
markets regulated by the CFTC or (with the exception of certain foreign currency
options) by the SEC. To the contrary, such instruments are traded through
financial institutions acting as market-makers, although foreign currency
options are also traded on certain national securities exchanges, such as the
Philadelphia Stock Exchange and the Chicago Board Options Exchange, subject to
SEC regulation. Similarly, options on currencies may be traded over-the-counter.
In an over-the-counter trading environment, many of the protections afforded to
exchange participants will not be available. For example, there are no daily
price fluctuation limits, and adverse market movements could therefore continue
to an unlimited extent over a period of time. Although the purchaser of an
option cannot lose more than the amount of the premium plus related transaction
costs, this entire amount could be lost. Moreover, the option writer and a
trader of forward contracts could lose amounts substantially in excess of their
initial investments, due to the margin and collateral requirements associated
with such positions.
Options on foreign currencies traded on national securities exchanges are within
the jurisdiction of the SEC, as are other securities traded on such exchanges.
As a result, many of the protections provided to traders on organized exchanges
will be available with respect to such transactions. In particular, all foreign
currency option positions entered into on a national securities exchange are
cleared and guaranteed by the Options Clearing Corporation (the "OCC"), thereby
reducing the risk of counterparty default. Further, a liquid secondary market in
options traded on a national securities exchange may be more readily available
than in the over-the-counter market, potentially permitting the Fund to
liquidate open positions at a profit prior to exercise or expiration, or to
limit losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options, however, is
subject to the risks of the availability of a liquid secondary market described
above, as well as the risks regarding adverse market movements, margining of
options written, the nature of the foreign currency market, possible
intervention by governmental authorities and the effects of other political and
economic events. In addition, exchange-traded options on foreign currencies
involve certain risks not presented by the over-the-counter market. For example,
exercise and settlement of such options must be made exclusively through the
OCC, which has established banking relationships in applicable foreign countries
for this purpose. As a result, the OCC may, if it determines that foreign
governmental restrictions or taxes would prevent the orderly settlement of
foreign currency option exercises, or would result in undue burdens on the OCC
or its clearing member, impose special procedures on exercise and settlement,
such as technical changes in the mechanics of delivery of currency, the fixing
of dollar settlement prices or prohibitions on exercise.
As in the case of forward contracts, certain options on foreign currencies are
traded over-the-counter and involve liquidity and credit risks which may not be
present in the case of exchange-traded currency options. The Fund's ability to
terminate over-the-counter options will be more limited than with
exchange-traded options. It is also possible that broker-dealers participating
in over-the-counter options transactions will not fulfill their obligations.
Until such time as the staff of the SEC changes its position, the Fund will
treat purchased over-the-counter options and assets used to cover written
over-the-counter options as illiquid securities. With respect to options written
with primary dealers in U.S. government securities pursuant to an agreement
requiring a closing purchase transaction at a formula price, the amount of
illiquid securities may be calculated with reference to the repurchase formula.
In addition, futures contracts, options on futures contracts, forward contracts
and options on foreign currencies may be traded on foreign exchanges. Such
transactions are subject to the risk of governmental actions affecting trading
in or the prices of foreign currencies or securities. The value of such
positions also could be adversely affected by: (i) other complex foreign
political and economic factors; (ii) lesser availability than in the United
States of data on which to make trading decisions; (iii) delays in the Fund's
ability to act upon economic events occurring in foreign markets during
nonbusiness hours in the United States; (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States; and (v) lesser trading volume.
Portfolio Turnover. The Fund intends to manage its holdings actively to pursue
its investment objective. Since the Fund has a long-term investment perspective,
it does not intend to respond to short-term market fluctuations or to acquire
securities for the purpose of short-term trading; however, it may take advantage
of short-term trading opportunities that are consistent with its investment
objective. The annual portfolio turnover rate of the Fund may exceed 100%.
Higher portfolio turnover rates result in higher brokerage costs and possible
adverse tax consequences.
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Rating Services. The ratings of rating services represent their opinions as to
the quality of the securities that they undertake to rate. It should be
emphasized, however, that ratings are relative and subjective and are not
absolute standards of quality. Although these ratings are an initial criterion
for selection of portfolio investments, the Adviser also makes its own
evaluation of these securities, subject to review by the Board of Trustees.
After purchase by the Fund, an obligation may cease to be rated or its rating
may be reduced below the minimum required for purchase by the Fund. Neither
event would require the Fund to eliminate the obligation from its portfolio, but
the Adviser will consider such an event in its determination of whether the Fund
should continue to hold the obligation. A description of the ratings is included
in the Fund's Prospectus.
Investment Restrictions
The following investment restrictions are "fundamental policies" of the Fund and
may not be changed without the approval of a "vote of a majority of the
outstanding voting securities" of the Fund. "A vote of a majority of the
outstanding voting securities" the 1940 Act, and as used in this SAI and the
Prospectus, means, the lesser of (i) 67% or more of the outstanding shares of
the Fund present at a meeting, if the holders of more than 50% of the
outstanding shares of the Fund are present or represented by proxy or (ii) more
than 50% of the outstanding shares of the Fund.
Fundamental Policies. As a matter of fundamental policy, the Trust, with respect
to the Fund, may not (except that no investment restriction of the Fund shall
prevent the Fund from investing all of its investable assets in an open-end
investment company with substantially the same investment objective):
(1) borrow money or mortgage or hypothecate assets of the Fund, except
that in an amount not to exceed 1/3 of the current value of the Fund's assets,
it may borrow money as a temporary measure for extraordinary or emergency
purposes and enter into reverse repurchase agreements or dollar roll
transactions, and except that it may pledge, mortgage or hypothecate not more
than 1/3 of such assets to secure such borrowings (it is intended that money
would be borrowed only from banks and only either to accommodate requests for
the withdrawal of beneficial interests (redemption of shares) while effecting an
orderly liquidation
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of portfolio securities or to maintain liquidity in the event of an
unanticipated failure to complete the portfolio security transaction or other
similar situations) or reverse repurchase agreements, provided that collateral
arrangements with respect to options and futures, including deposits of initial
deposit and variation margin, are not considered a pledge of assets for purposes
of this restriction and except that assets may be pledged to secure letters of
credit solely for the purpose of participating in a captive insurance company
sponsored by the Investment Company Institute; for additional related
restrictions, see clause (i) under the caption "Additional Restrictions" below;
(2) underwrite securities issued by other persons except insofar as the
Trust or the Fund may technically be deemed an underwriter under the 1933 Act in
selling the portfolio security;
(3) make loans to other persons except: (a) through the lending of the
Fund's portfolio securities and provided that any such loans not exceed 30% of
the Fund's net assets (taken at market value); (b) through the use of repurchase
agreements or the purchase of short-term obligations; or (c) by purchasing a
portion of an issue of debt securities of types distributed publicly or
privately;
(4) purchase or sell real estate (including limited partnership interests
but excluding securities secured by real estate or interests therein), interests
in oil, gas or mineral leases, commodities or commodity contracts (except
futures and option contracts) in the ordinary course of business (except that
the Trust may hold and sell, for the Fund's portfolio, real estate acquired as a
result of the Fund's ownership of securities);
(5) concentrate its investments in any particular industry (excluding U.S.
government securities), but if it is deemed appropriate for the achievement of
the Fund's investment objective, up to 25% of its total assets may be invested
in any one industry; and
(6) issue any senior security (as that term is defined in the 1940 Act) if
such issuance is specifically prohibited by the 1940 Act or the rules and
regulations promulgated thereunder, provided that collateral arrangements with
respect to options and futures, including deposits of initial deposit and
variation margin, are not considered to be the issuance of a senior security for
purposes of this restriction.
(7) with respect to 75% of the Fund's total assets, invest more than 5% of
the total assets of the Fund in the securities of any one issuer (excluding cash
and cash-equivalents, U.S. government securities and the securities of other
investments companies) or own more than 10% of the voting securities of any
issuer.
Additional Restrictions. In order to comply with certain statutes and policies,
the Trust, on behalf of the Fund will not as a matter of operating policy:
(i) borrow money (including through reverse repurchase or forward roll
transactions) for any purpose in excess of 5% of the Fund's total
assets (taken at cost), except that the Fund may borrow for
temporary or emergency purposes up to 1/3 of its total assets;
(ii) pledge, mortgage or hypothecate for any purpose in excess of 10% of
the Fund's total assets (taken at market value), provided that
collateral arrangements with respect to options and futures,
including deposits of initial deposit and variation margin, and
reverse repurchase agreements are not considered a pledge of assets
for purposes of this restriction;
(iii) purchase any security or evidence of interest therein on margin,
except that such short-term credit as may be necessary for the
clearance of purchases and sales of securities may be obtained and
except that deposits of initial deposit and variation margin may be
made in connection with the purchase, ownership, holding or sale of
futures;
(iv) sell securities it does not own (short sells) such that the dollar
amount of such short sales at any one time exceeds 25% of the net
equity of the Fund, and the value of securities of any one issuer
in which the Fund is short exceeds the lesser of 2.0% of the value
of the Fund's net assets or 2.0% of the securities of any class of
any U.S. issuer and, provided that short sales may be made only in
those securities which are fully listed on a national securities
exchange or a foreign exchange (This provision does not include the
sale of securities that the Fund contemporaneously owns or where
the Fund has the right to obtain securities equivalent in kind and
amount to those sold, i.e., short sales against the box.) (The Fund
currently does not engage in short selling.);
(v) invest for the purpose of exercising control or management of
another company;
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(vi) purchase securities issued by any investment company except by
purchase in the open market where no commission or profit to a
sponsor or dealer results from such purchase other than the
customary broker's commission, or except when such purchase, though
not made in the open market, is part of a plan of merger or
consolidation; provided, however, that securities of any investment
company will not be purchased for the Fund if such purchase at the
time thereof would cause: (a) more than 10% of the Fund's total
assets (taken at the greater of cost or market value) to be
invested in the securities of such issuers; (b) more than 5% of the
Fund's total assets (taken at the greater of cost or market value)
to be invested in any one investment company; or (c) more than 3%
of the outstanding voting securities of any such issuer to be held
for the Fund, unless permitted to exceed these limitations by an
exemptive order of the SEC; provided further that, except in the
case of a merger or consolidation, the Fund shall not purchase any
securities of any open-end investment company unless (1) the
investment adviser waives the investment advisory fee with respect
to assets invested in other open-end investment companies and (2)
the Fund incurs no sales charge in connection with the investment;
(vii) invest more than 10% of the Fund's total assets (taken at the
greater of cost or market value) in securities (excluding Rule 144A
securities) that are restricted as to resale under the 1933 Act;
(viii) invest more than 5% in securities that are issued by issuers which
(including predecessors) have been in operation less than three
years (other than U.S. government securities);
(ix) invest more than 15% of the Fund's net assets (taken at the greater
of cost or market value) in securities that are illiquid or not
readily marketable excluding (a) Rule 144A securities that have
been determined to be liquid by the Board of Trustees; and (b)
commercial paper that is sold under section 4(2) of the 1933 Act
which: (i) is not traded flat or in default as to interest or
principal; and (ii) is rated in one of the two highest categories
by at least two nationally recognized statistical rating
organizations and the Trust's Board of Trustees have determined the
commercial paper to be liquid; or (iii) is rated in one of the two
highest categories by one nationally recognized statistical rating
agency and the Trust's Board of Trustees has determined that the
commercial paper is of equivalent quality and is liquid;
(x) invest in securities issued by an issuer any of whose officers,
directors, trustees or security holders is an officer or Trustee of
the Trust, or is an officer or director of the Adviser, if after
the purchase of the securities of such issuer for the Fund one or
more of such persons owns beneficially more than 1/2 of 1% of the
shares or securities, or both, all taken at market value, of such
issuer, and such persons owning more than 1/2 of 1% of such shares
or securities together own beneficially more than 5% of such shares
or securities, or both, all taken at market value;
(xi) invest in warrants (other than warrants acquired by the Fund as
part of a unit or attached to securities at the time of purchase)
if, as a result, the investments (valued at the lower of cost or
market) would exceed 5% of the value of the Fund's net assets or
if, as a result, more than 2% of the Fund's net assets would be
invested in warrants not listed on a recognized United States or
foreign stock exchange, to the extent permitted by applicable state
securities laws;
(xii) write puts and calls on securities unless each of the following
conditions are met: (a) the security underlying the put or call is
within the investment practices of the Fund and the option is
issued by the OCC, except for put and call options issued by
non-U.S. entities or listed on non-U.S. securities or commodities
exchanges; (b) the aggregate value of the obligations underlying
the puts determined as of the date the options are sold shall not
exceed 5% of the Fund's net assets; (c) the securities subject to
the exercise of the call written by the Fund must be owned by the
Fund at the time the call is sold and must continue to be owned by
the Fund until the call has been exercised, has lapsed, or the Fund
has purchased a closing call, and such purchase has been confirmed,
thereby extinguishing the Fund's obligation to deliver securities
pursuant to the call it has sold; and (d) at the time a put is
written, the Fund establishes a segregated account with its
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custodian consisting of cash or securities acceptable to the broker
equal in value to the amount the Fund will be obligated to pay upon
exercise of the put (this account must be maintained until the put
is exercised, has expired, or the Fund has purchased a closing put,
which is a put of the same series as the one previously written);
and
(xiii) buy and sell puts and calls on securities, stock index futures or
options on stock index futures, or financial futures or options on
financial futures unless such options are written by other persons
and: (a) the options or futures are offered through the facilities
of a national securities association or are listed on a national
securities or commodities exchange, except for put and call options
issued by non-U.S. entities or listed on non-U.S. securities or
commodities exchanges; (b) the aggregate premiums paid on all such
options which are held at any time do not exceed 20% of the Fund's
total net assets; and (c) the aggregate margin deposits required on
all such futures or options thereon held at any time do not exceed
5% of the Fund's total assets.
There will be no violation of any investment restrictions or policies (except
with respect to fundamental investment restriction (1) above) if that
restriction is complied with at the time the relevant action is taken,
notwithstanding a later change in the market value of an investment, in net or
total assets, or in the change of securities rating of the investment, or any
other later change.
Brokerage Commissions
The Adviser is responsible for decisions to buy and sell securities, futures
contracts and options on such securities and futures for the Fund, the selection
of brokers, dealers and futures commission merchants to effect transactions and
the negotiation of brokerage commissions, if any. Broker-dealers may receive
brokerage commissions on portfolio transactions, including options, futures and
options on futures transactions and the purchase and sale of underlying
securities upon the exercise of options. Orders may be directed to any
broker-dealer or futures commission merchant, including to the extent and in the
manner permitted by applicable law, Bankers Trust or its subsidiaries or
affiliates. Purchases and sales of certain portfolio securities on behalf of the
Fund are frequently placed by the Adviser with the issuer or a primary or
secondary market-maker for these securities on a net basis, without any
brokerage commission being paid by the Fund. Trading does, however, involve
transaction costs. Transactions with dealers serving as market-makers reflect
the spread between the bid and asked prices. Transaction costs may also include
fees paid to third parties for information as to potential purchasers or sellers
of securities. Purchases of underwritten issues may be made which will include
an underwriting fee paid to the underwriter.
The Adviser seeks to evaluate the overall reasonableness of the brokerage
commissions paid (to the extent applicable) in placing orders for the purchase
and sale of securities for the Fund taking into account such factors as price,
commission (negotiable in the case of national securities exchange
transactions), if any, size of order, difficulty of execution and skill required
of the executing broker-dealer through familiarity with commissions charged on
comparable transactions, as well as by comparing commissions paid by the Fund to
reported commissions paid by others. The Adviser reviews on a routine basis
commission rates, execution and settlement services performed, making internal
and external comparisons.
The Adviser is authorized, consistent with Section 28(e) of the Securities
Exchange Act of 1934, as amended, when placing portfolio transactions for the
Fund with a broker to pay a brokerage commission (to the extent applicable) in
excess of that which another broker might have charged for effecting the same
transaction on account of the receipt of research, market or statistical
information. The term "research, market or statistical information" includes
advice as to the value of securities; the advisability of investing in,
purchasing or selling securities; the availability of securities or purchasers
or sellers of securities; and furnishing analyses and reports concerning
issuers, industries, securities, economic factors and trends, portfolio strategy
and the performance of accounts.
Consistent with the policy stated above, the Conduct Rules of the National
Association of Securities Dealers, Inc. and such other policies as the Trustees
of the Trust may determine, the Adviser may consider sales of shares of the
Trust and of other investment company clients of the Adviser as a factor in the
selection of broker-dealers to execute portfolio transactions. The Adviser will
make such allocations if commissions are comparable to those charged by
nonaffiliated, qualified broker-dealers for similar services.
15
<PAGE>
Higher commissions may be paid to firms that provide research services to the
extent permitted by law. The Adviser may use this research information in
managing the Fund's assets, as well as the assets of other clients.
Except for implementing the policies stated above, there is no intention to
place portfolio transactions with particular brokers or dealers or groups
thereof. In effecting transactions in over-the-counter securities, orders are
placed with the principal market-makers for the security being traded unless,
after exercising care, it appears that more favorable results are available
otherwise.
Although certain research, market and statistical information from brokers and
dealers can be useful to the Fund and to the Adviser, it is the opinion of the
management of the Fund that such information is only supplementary to the
Adviser's own research effort, since the information must still be analyzed,
weighed and reviewed by the Adviser's staff. Such information may be useful to
the Adviser in providing services to clients other than the Fund, and not all
such information is used by the Adviser in connection with the Fund. Conversely,
such information provided to the Adviser by brokers and dealers through whom
other clients of the Adviser effect securities transactions may be useful to the
Adviser in providing services to the Fund.
In certain instances there may be securities which are suitable for the Fund as
well as for one or more of the Adviser's other clients. Investment decisions for
the Fund and for the Adviser's other clients are made with a view to achieving
their respective investment objectives. It may develop that a particular
security is bought or sold for only one client even though it might be held by,
or bought or sold for, other clients. Likewise, a particular security may be
bought for one or more clients when one or more clients are selling that same
security. Some simultaneous transactions are inevitable when several clients
receive investment advice from the same investment adviser, particularly when
the same security is suitable for the investment objectives of more than one
client. When two or more clients are simultaneously engaged in the purchase or
sale of the same security, the securities are allocated among clients in a
manner believed to be equitable to each. It is recognized that in some cases
this system could have a detrimental effect on the price or volume of the
security as far as the Fund in concerned. However, it is believed that the
ability of the Fund to participate in volume transactions will produce better
executions for the Fund.
Prior to September 27, 1996, the Fund sought to achieve the investment objective
by investing all of its investable assets in the Capital Appreciation Portfolio
(the "Portfolio"), which is a separate registered investment company with an
identical investment objective. The Fund's fiscal year end is September 30.
Formerly, both the Fund's and the Portfolio's fiscal year end was December 31.
For the fiscal year ended September 30, 1998, the Fund paid brokerage
commissions in the amount of $________. For the fiscal years ended September 30,
1997 and 1996, the Portfolio paid brokerage commissions in the amounts of
$174,242 and $ 648,897, respectively.
PERFORMANCE INFORMATION
Standard Performance Information
From time to time, quotations of the Class' performance may be included in
advertisements, sales literature or shareholder reports. Mutual fund performance
is commonly measured as total return and/or yield. The Fund's performance is
affected by its expenses. These performance figures are calculated in the
following manner:
Total return: The Trust may provide period and average annualized "total return"
quotations for the Shares. The Shares' "total return" refers to the change in
the value of an investment in the Shares over a stated period based on any
change in net asset value per Share and including the value of any Shares
purchasable with any dividends or capital gains distributed during such period.
Period total return may be annualized. An annualized total return is a
compounded total return which assumes that the period total return is generated
over a one-year period, and that all dividends and capital gains distributions
are reinvested. An annualized total return will be higher than a period total
return if the period is shorter than one year, because of the compounding
effect. A Class' average annual total return is calculated for certain periods
by determining the average annual compounded rates of return over those periods
that would cause an investment of $1,000 (made at the maximum public offering
price with all distributions reinvested) to reach the value of that investment
at the end of the periods. A Class may also calculate total return figures which
represent aggregate performance over a period or year-by-year performance.
16
<PAGE>
Prior to September 27, 1996, the Fund did not offer classes of shares and the
performance of the Investment Class was that of the Fund's.
The Fund's average annual total returns for Investment Class shares for the
one-year period ended September 30, 1998, and for the period from October 12,
1993, (commencement of operations), through September 30, 1998, were ___% and
____%, respectively.
Performance Results: Total returns and yields are based on past results and are
not an indication of future performance. Any total return quotation provided for
the Fund should not be considered as representative of the performance of the
Fund in the future since the net asset value and public offering price of shares
of the Fund will vary based not only on the type, quality and maturities of the
securities held in its portfolio, but also on changes in the current value of
such securities and on changes in the expenses of the Fund. These factors and
possible differences in the methods used to calculate total return should be
considered when comparing the total return of the Fund to total returns
published for other investment companies or other investment vehicles. Total
return reflects the performance of both principal and income.
The Trust may provide annualized "yield" quotations for the Shares. The "yield"
of the Shares refers to the income generated by an investment in the Shares over
a 30-day or one-month period (which period shall be stated in any such
advertisement or communications). This income is then annualized; that is, the
amount generated by the investment over the period is assumed to be generated
over a one-year period and is shown as a percentage of investment.
Unlike some bank deposits or other investments which pay a fixed yield for a
stated period of time, the total return of the Fund will vary depending upon
interest rates, the current market value of the securities held by the Fund and
changes in the Shares' expenses.
Shareholders will receive financial reports semi-annually that include the
Shares' financial statements, including listings of investment securities held
by the Fund at those dates. Annual reports are audited by independent
accountants.
Comparison of Fund Performance
Comparison of the quoted nonstandardized performance of various investments is
valid only if performance is calculated in the same manner. Since there are
different methods of calculating performance, investors should consider the
effect of the methods used to calculate performance when comparing performance
of the Fund with performance quoted with respect to other investment companies
or types of investments. Performance information may include the Shares'
investment results and/or comparisons of its investment results to the Russell
Mid-Cap Index, the Standard and Poor's 500 Composite Stock Price Index, the
Standard and Poor's Mid-Cap 400 Index, the Lipper Growth Fund Average or other
various unmanaged indices or results of other mutual funds or investment or
savings vehicles.
In connection with communicating its performance to current or prospective
shareholders, the Fund also may compare these figures to the performance of
other mutual funds tracked by mutual fund rating services or to unmanaged
indices which may assume reinvestment of dividends but generally do not reflect
deductions for administrative and management costs. Evaluations of the Fund's
performance made by independent sources may also be used in advertisements
concerning the Fund. Sources for the Fund's performance information could
include the following:
Asian Wall Street Journal, a weekly Asian newspaper that often reviews U.S.
mutual funds investing internationally.
Barron's, a Dow Jones and Company, Inc. business and financial weekly that
periodically reviews mutual fund performance data.
Business Week, a national business weekly that periodically reports the
performance rankings and ratings of a variety of mutual funds investing abroad.
Changing Times, The Kiplinger Magazine, a monthly investment advisory
publication that periodically features the performance of a variety of
securities.
17
<PAGE>
Consumer Digest, a monthly business/financial magazine that includes a "Money
Watch" section featuring financial news.
Financial Times, Europe's business newspaper, which features from time to time
articles on international or country-specific funds.
Financial World, a general business/financial magazine that includes a "Market
Watch" department reporting on activities in the mutual fund industry.
Forbes, a national business publication that from time to time reports the
performance of specific investment companies in the mutual fund industry.
Fortune, a national business publication that periodically rates the performance
of a variety of mutual funds.
Global Investor, a European publication that periodically reviews the
performance of U.S. mutual funds investing internationally.
Investor's Daily, a daily newspaper that features financial, economic and
business news.
Lipper Analytical Services, Inc.'s Mutual Fund Performance Analysis, a weekly
publication of industry-wide mutual fund averages by type of fund.
Money, a monthly magazine that from time to time features both specific funds
and the mutual fund industry as a whole.
Morningstar Inc., a publisher of financial information and mutual fund research.
New York Times, a nationally distributed newspaper which regularly covers
financial news.
Personal Investing News, a monthly news publication that often reports on
investment opportunities and market conditions.
Personal Investor, a monthly investment advisory publication that includes a
"Mutual Funds Outlook" section reporting on mutual fund performance measures,
yields, indices and portfolio holdings.
Success, a monthly magazine targeted to the world of entrepreneurs and growing
business, often featuring mutual fund performance data.
U.S. News and World Report, a national business weekly that periodically reports
mutual fund performance data.
Value Line, a biweekly publication that reports on the largest 15,000 mutual
funds.
Wall Street Journal, a Dow Jones and Company, Inc. newspaper which regularly
covers financial news.
Weisenberger Investment Companies Services, an annual compendium of information
about mutual funds and other investment companies, including comparative data on
funds' backgrounds, management policies, salient features, management results,
income and dividend records, and price ranges.
Working Women, a monthly publication that features a "Financial Workshop"
section reporting on the mutual fund/financial industry.
18
<PAGE>
Economic and Market Information
Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on these
developments by Fund portfolio managers and their views and analysis on how such
developments could affect the Fund. In addition, advertising and sales
literature may quote statistics and give general information about the mutual
fund industry, including the growth of the industry, from sources such as the
Investment Company Institute ("ICI"). For example, according to the ICI,
thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $3.5 trillion to the more than 6,000 funds available.
VALUATION OF SECURITIES; REDEMPTIONS AND PURCHASES IN KIND
The net asset value ("NAV") per Share is calculated once on each Valuation Day
as of the close of regular trading on the NYSE (the "Valuation Time"), which is
currently 4:00 p.m., Eastern time or in the event that the NYSE closes early, at
the time of such early closing. The NAV per Share is computed by dividing the
value of the Fund's assets (i.e., the value of its investment in the Fund and
other assets), less all liabilities attributable to the Shares, by the total
number of Shares outstanding as of the Valuation Time. The Fund's securities and
other assets are valued primarily on the basis of market quotations or, if
quotations are not readily available, by a method which the Fund's Board of
Trustees believes accurately reflects fair value.
Under procedures adopted by the Board, a NAV for a Fund later determined to have
been inaccurate for any reason will be recalculated. Purchases and redemptions
made at a NAV determined to have been inaccurate will be adjusted, although in
certain circumstances, such as where the difference between the original NAV and
the recalculated NAV divided by the recalculated is 0.005 (1/2 of 1%) or less or
shareholder transactions are otherwise insubstantially affected, further action
is not required.
Equity and debt securities (other than short-term debt obligations maturing in
60 days or less), including listed securities and securities for which price
quotations are available, will normally be valued on the basis of market
valuations furnished by a pricing service. Short-term debt obligations and money
market securities maturing in 60 days or less are valued at amortized cost,
which approximates market.
Securities for which market quotations are not readily available are valued by
Bankers Trust pursuant to procedures adopted by the Trust's Board of Trustees.
It is generally agreed that securities for which market quotations are not
readily available should not be valued at the same value as that carried by an
equivalent security which is readily marketable.
The problems inherent in making a good faith determination of value are
recognized in the codification effected by SEC Financial Reporting Release No. 1
("FRR 1" (formerly Accounting Series Release No. 113)) which concludes that
there is "no automatic formula" for calculating the value of restricted
securities. It recommends that the best method simply is to consider all
relevant factors before making any calculation. According to FRR 1 such factors
would include consideration of the:
type of security involved, financial statements, cost at date of purchase,
size of holding, discount from market value of unrestricted securities of
the same class at the time of purchase, special reports prepared by
analysts, information as to any transactions or offers with respect to the
security, existence of merger proposals or tender offers affecting the
security, price and extent of public trading in similar securities of the
issuer or comparable companies, and other relevant matters.
To the extent that the Fund purchases securities which are restricted as to
resale or for which current market quotations are not readily available, the
Adviser will value such securities based upon all relevant factors as outlined
in FRR 1.
The Trust, on behalf of the Fund, reserves the right, if conditions exist which
make cash payments undesirable, to honor any request for redemption or
withdrawal by making payment in whole or in part in readily marketable
securities chosen by the Trust, and valued as they are for purposes of computing
the Class' net asset values (a redemption in kind). If payment is made to a Fund
shareholder in securities, an investor, including the Fund, may incur
transaction expenses in converting these securities into cash. The Trust, on
behalf of the Fund, has elected, however, to be governed by Rule 18f-1 under the
1940 Act as a result of which the Fund is obligated
19
<PAGE>
to redeem shares with respect to any one investor during any 90-day period,
solely in cash up to the lesser of $250,000 or 1% of the net asset value of the
Fund's Classes at the beginning of the period.
The Fund may, at its own option, accept securities in payment for shares of a
class. The securities delivered in payment for shares are valued by the method
described above as of the day the Fund receives the securities. This may be a
taxable transaction to the shareholder. (Consult your tax adviser for future tax
guidance.) Securities may be accepted in payment for shares only if they are, in
the judgment of Bankers Trust, appropriate investments for the Fund. In
addition, securities accepted in payment for shares must: (i) meet the
investment objective and policies of the acquiring Fund; (ii) be acquired by the
applicable Fund for investment and not for resale (other than for resale to the
Fund); (iii) be liquid securities which are not restricted as to transfer either
by law or liquidity of the market; and (iv) if stock, have a value which is
readily ascertainable as evidenced by a listing on a stock exchange,
over-the-counter market or by readily available market quotations from a dealer
in such securities. The Fund reserves the right to accept or reject at its own
option any and all securities offered in payment for its shares.
Purchase of Shares
The Trust accepts purchase orders for Shares of the Fund at the NAV per Share
next determined after the order is received on each Valuation Day. Shares may be
available through Investment Professionals, such as broker/dealers and
investment advisers (including Service Agents).
Purchase orders for Shares (including those purchased through a Service Agent)
that are transmitted to the Trust's Transfer Agent (the "Transfer Agent"), prior
to the Valuation Time on any Valuation Day will be effective at that day's
Valuation Time. The Trust and Transfer Agent reserve the right to reject any
purchase order.
Shares must be purchased in accordance with procedures established by the
Transfer Agent and each Service Agent. It is the responsibility of each Service
Agent to transmit to the Transfer Agent purchase and redemption orders and to
transmit to Bankers Trust as the Trust's custodian (the "Custodian") purchase
payments by the following business day (trade date + 1) after an order for
shares is placed. A shareholder must settle with the Service Agent for his or
her entitlement to an effective purchase or redemption order as of a particular
time. Because Bankers Trust is the Custodian and Transfer Agent of the Trust,
funds may be transferred directly from or to a customer's account held with
Bankers Trust to settle transactions with the Fund without incurring the
additional costs or delays associated with the wiring of federal funds.
The Trust and the Adviser have authorized one or more brokers to accept on the
Trust's behalf purchase and redemption orders. Such brokers are authorized to
designate other intermediaries to accept purchase and redemption orders on the
Trust's behalf. The Transfer Agent will be deemed to have received a purchase or
redemption order when an authorized broker or, if applicable, a broker's
authorized designee, accepts the order. Customer orders will be priced at the
Fund's NAV next computed after they are accepted by an authorized broker or the
broker's authorized designee.
Certificates for Shares will not be issued. Each shareholder's account will be
maintained by a Service Agent or Transfer Agent.
If orders are placed through an Investment Professional, it is the
responsibility of the Investment Professional to transmit the order to buy
Shares to the Transfer Agent before 4:00 p.m. Eastern time.
The Transfer Agent must receive payment within one business day after an order
for Shares is placed; otherwise, the purchase order may be canceled and the
investor could be held liable for resulting fees and/or losses.
Minimum Investments
To Open an Account $2,500
For retirement accounts 500
Through automatic investment plans 1,000
20
<PAGE>
To Add to an Account $250
For retirement accounts 100
Through automatic investment plans 100
Minimum Balance $1,000
For retirement accounts None
If you are new to BT Pyramid Mutual Funds, complete and sign an account
application and mail it along with your check to the address listed below. If
there is no account application accompanying this Prospectus, call the BT
Service Center at 1-800-730-1313.
BT Service Center
P.O. Box 419210
Kansas City, MO 64141-6210
Overnight mailings:
BT Service Center
210 West 10th Street, 8th Floor
Kansas City, MO 64105-1716
If you have money invested in a fund in the BT Family of Funds, you can:
o Mail an account application with a check,
o Wire money into your account,
o Open an account by exchanging from another fund in the BT Family of
Funds, or
o Contact your Service Agent or Investment Professional.
<TABLE>
<CAPTION>
Additional Information About Buying Shares
To Open an Account To Add to an Account
<S><C>
By Wire Call the BT Service Center at Call your Investment Professional
1-800-730-1313 to receive wire or wire additional investment to:
instructions for account
establishment. Routing No.: 021001033
Attn: Bankers Trust/IFTC
Deposit
DDA No.: 00-226-296
FBO: (Account name)
(Account Number)
Credit: Fund Number
BT Investment Equity
Appreciation Fund -- 477
Specify the
complete name of
the Fund,
including your
account number
and your name.
By Phone Contact your Service Agent, Contact your Service Agent,
Investment Professional, or call Investment Professional, or call
BT's Service Center at BT's Service Center at
1-800-730-1313. If you are an 1-800-730-1313. If you are an
existing Shareholder, you may existing Shareholder, you may
exchange from another BT account exchange from another BT account
with the same registration, with the same registration,
including name, address, and including name, address, and
taxpayer ID number. taxpayer ID number.
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
To Open an Account To Add to an Account
<S><C>
By Mail Complete and sign the account Make your check payable to the
application. Make your check complete name of the Fund of your
payable to the complete name of the choice. Indicate your Fund
account Fund of your choice. Mail to the number on your check and
mail to appropriate address indicated on the the address printed on
your account application. statement.
</TABLE>
Redemption of Shares
You can arrange to take money out of your fund account at any time by selling
(redeeming) some or all of your Shares. Your Shares shall be sold at the next
NAV calculated after an order is received by the Transfer Agent. Redemption
requests should be transmitted by customers in accordance with procedures
established by the Transfer Agent and the shareholder's Service Agent.
Redemption requests for Shares received by the Service Agent and transmitted to
the Transfer Agent prior to the Valuation Time on each Valuation Day will be
effective at that day's Valuation Time and the redemption proceeds normally will
be delivered to the shareholder's account the next day, but in any event within
seven calendar days following receipt of the request.
Service Agents may allow redemptions or exchanges by telephone and may disclaim
liability for following instructions communicated by telephone that the Service
Agent reasonably believes to be genuine. The Service Agent must provide the
investor with an opportunity to choose whether or not to utilize the telephone
redemption or exchange privilege. The Transfer Agent and the Service Agent must
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. If the Service Agent does not do so, it may be liable for
any losses due to unauthorized or fraudulent instructions. Such procedures may
include, among others, requiring some form of personal identification prior to
acting upon instructions received by telephone, providing written confirmation
of such transactions and/or tape recording of telephone instructions.
Redemption orders are processed without charge by the Trust. The Trust reserves
the right to close investor accounts via 30 day notice in writing if the Fund
account balance falls below the minimum, but not if an account is below the
minimum due to change in market value. See "Minimum Investments" above for
minimum balance amounts.
To sell Shares in a retirement account, your request must be made in writing,
except for exchanges to other eligible funds in the BT Family of Funds, which
can be requested by phone or in writing. For information on retirement
distributions, contact your Service Agent or call the BT Service Center at
1-800-730-1313.
To sell Shares by bank wire you will need to sign up for these services in
advance when completing your account application.
Certain requests must include a signature guarantee to protect you and Bankers
Trust from fraud. Redemption requests in writing must include a signature
guarantee if any of the following situations apply:
o Your account registration has changed within the last 30 days,
o The check is being mailed to a different address than the one on your
account (record address),
o The check is being made payable to someone other than the account owner,
o The redemption proceeds are being transferred to a BT account with a
different registration, or
o You wish to have redemption proceeds wired to a non-predesignated bank
account.
22
<PAGE>
A signature guarantee is also required if you change the pre-designated bank
information for receiving redemption proceeds on your account.
You should be able to obtain a signature guarantee from a bank, broker, dealer,
credit union (if authorized under state law), securities exchange or
association, clearing agency, or savings association. A notary public cannot
provide a signature guarantee.
Additional Information About Selling Shares
By Wire - You must sign up for the wire feature before using it. To verify that
it is in place, call 1-800-730-1313. Minimum wire: $1,000. Your wire redemption
request must be received by the Transfer Agent before 4:00 p.m. Eastern time for
money to be wired on the next business day.
In Writing - Write a signed "letter of instruction" with your name, the Fund's
name and Fund's number, your Fund account number, the dollar amount or number of
Shares to be redeemed, and mail to one of the following addresses:
BT Service Center
P.O. Box 419210
Kansas City, MO 64141-6210
Overnight mailings:
BT Service Center
210 West 10th Street, 8th Floor
Kansas City, MO 64105-1716
For Trust accounts, the trustee must sign the letter indicating capacity as
trustee. If the trustee's name is not on the account registration, provide a
copy of the trust document certified within the last 60 days.
For a Business or Organization account, at least one person authorized by
corporate resolution to act on the account must sign the letter.
Unless otherwise instructed, the Transfer Agent will send a check to the account
address of record.
Exchange Privilege
Shareholders may exchange their Shares for shares of certain other funds in the
BT Family of Funds registered in their state. To make an exchange, follow the
procedures indicated in "Purchase of Shares" and "Redemption of Shares" herein.
Before making an exchange, please note the following:
o Call your Service Agent for information and a prospectus. Read the
prospectus for relevant information.
o Complete and sign an application, taking care to register your new account
in the same name, address and taxpayer identification number as your
existing account(s).
o Each exchange represents the sale of shares of one fund and the purchase
of shares of another, which may produce a gain or loss for tax purposes.
Your Service Agent will receive a written confirmation of each exchange
transaction.
o Exchanges out of the Fund may be limited to four per calendar year and any
exchange may have tax consequences for you.
o The Fund reserves the right to terminate or modify the exchange privilege
in the future.
MANAGEMENT OF THE TRUST
The Board of Trustees is composed of persons experienced in financial matters
who meet throughout the year to oversee the activities of the Fund. In addition,
the Trustees review contractual arrangements with companies that provide
services to the Fund and review the Fund's performance.
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<PAGE>
The Trustees and officers of the Trust, their birthdates and their principal
occupations during the past five years are set forth below. Their titles may
have varied during that period. Unless otherwise indicated, the address of each
officer is Clearing Operations, P.O. Box 897, Pittsburgh, Pennsylvania
15230-0897.
Trustees of the Trust
HARRY VAN BENSCHOTEN (birthdate: February 18, 1928) -- Trustee; retired (since
1987); Director, Canada Life Insurance Corporation of New York and Competitive
Technologies, Inc., a public company listed on the American Stock Exchange;
Corporate Vice President, Newmont Mining Corporation (prior to 1987). His
address is 6581 Ridgewood Drive, Naples, Florida 33963.
MARTIN J. GRUBER (birthdate: July 15, 1937) -- Trustee; Chairman of the Finance
Department and Nomura Professor of Finance, Leonard N. Stern School of Business,
New York University (since 1964). His address is 229 S. Irving Street,
Ridgewood, New Jersey 07450.
KELVIN J. LANCASTER (birthdate: December 10, 1924) -- Trustee; Professor,
Department of Economics, Columbia University. His address is 35 Claremont
Avenue, New York, New York 10027.
Officers of the Trust
RONALD M. PETNUCH (birthdate: February 27, 1960) -- President and Treasurer;
Senior Vice President, Federated Services Company ("FSC"); formerly, Director of
Proprietary Client Services, Federated Administrative Services ("FAS"), and
Associate Corporate Counsel, Federated Investors ("FI").
CHARLES L. DAVIS, JR. (birthdate: March 23, 1960)-- Vice President and Assistant
Treasurer; Vice President, FAS.
JAY S. NEUMAN (birthdate: April 22, 1950) -- Secretary; Corporate Counsel, FI.
Trustee Compensation Table
Aggregate Total Compensation
Name of Person, Compensation From Fund Complex**
Position From Trust*+ Paid to Trustees***
--------------------------------------------------------
Harry Van Benschoten [$13,125] [$27,500]
Trustee of Trust --------- ---------
Martin J. Gruber [$13,125] [$27,500]
Trustee of Trust --------- ---------
Kelvin J. Lancaster [$13,125] [$27,500]
Trustee of Trust --------- ---------
--------------------------------------------------------
* The aggregate compensation is provided for the BT Pyramid Funds which is
comprised of 6 funds.
+ Information is provided for the Trust's most recent fiscal year ended
December 31, 1998.
** Aggregated information is furnished for the BT Family of Funds which
consists of the following: BT Investment Funds, BT Institutional Funds, BT
Pyramid Funds, BT Advisor Funds, BT Investment Portfolios, Cash Management
Portfolio, Treasury Money Portfolio, Tax Free Money Portfolio, NY Tax Free
Money Portfolio, International Equity Portfolio, Short Intermediate US
Government Securities Portfolio, Intermediate Tax Free Portfolio, Asset
Management Portfolio, Equity 500 Index Portfolio, and Capital Appreciation
Portfolio.
*** The compensation is provided for the calendar year ended December 31, 1998.
As of December 31, 1998, the Trustees and officers of the Trust owned in the
aggregate less than 1% of the shares of the Fund or Trust (all series taken
together).
As of December 31, 1998, the following shareholders of record owned 5% or more
of the outstanding Investment Class Shares of the Fund: [TO BE PROVIDED].
Investment Adviser
24
<PAGE>
The Trust has retained the services of Bankers Trust as Adviser. 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, 1998, Bankers Trust New York Corporation was the
seventh largest bank holding company in the United States with total assets of
over $150 billion.] [The scope of Bankers Trust's investment management
capability is unique due to its leadership positions in both active and passive
quantitative management and its presence in major equity and fixed income
markets around the world. Bankers Trust is one of the nation's largest and most
experienced investment managers with over $300 billion in assets under
management globally.]
Under the terms of the investment advisory agreement with Bankers Trust (the
"Advisory Agreement"), Bankers Trust manages the Fund subject to the supervision
and direction of the Board of Trustees of the Trust. Bankers Trust will: (i) act
in strict conformity with the Trust's Declaration of Trust, the 1940 Act and the
Investment Advisers Act of 1940, as the same may from time to time be amended;
(ii) manage the Fund in accordance with the Fund's investment objective,
restrictions and policies; (iii) make investment decisions for the Fund; and
(iv) place purchase and sale orders for securities and other financial
instruments on behalf of the Fund;
Bankers Trust bears all expenses in connection with the performance of services
under the Advisory Agreement. The Trust bears certain other expenses incurred in
its operation, including: taxes, interest, brokerage fees and commissions, if
any; fees of Trustees of the Trust who are not officers, directors or employees
of Bankers Trust, ICC Distributors or any of their affiliates; SEC fees and
state Blue Sky qualification fees; certain insurance premiums; outside auditing
and legal expenses; costs of maintenance of corporate existence; costs
attributable to investor services, including, without limitation, telephone and
personnel expenses; costs of preparing and printing prospectuses and statements
of additional information for regulatory purposes and for distribution to
existing shareholders; costs of shareholders' reports and meetings of
shareholders, officers and Trustees of the Trust; and any extraordinary
expenses.
For the fiscal year ended September 30, 1998, Bankers Trust earned $____ as
compensation for investment advisory services provided to the Fund. For the
fiscal year ended September 30, 1997 and 1996, Bankers Trust earned $971,676 and
$1,225,764, respectively, as compensation for investment advisory services
provided to the Fund. During the same periods, Bankers Trust reimbursed
[$_______, $319,524, and $131,702,] respectively, to the Fund to cover expenses.
Bankers Trust may have deposit, loan and other commercial banking relationships
with the issuers of obligations which may be purchased on behalf of the Fund,
including outstanding loans to such issuers which could be repaid in whole or in
part with the proceeds of securities so purchased. Such affiliates deal, trade
and invest for their own accounts in such obligations and are among the leading
dealers of various types of such obligations. Bankers Trust has informed the
Fund that, in making its investment decisions, it does not obtain or use
material inside information in its possession or in the possession of any of its
affiliates. In making investment recommendations for the Fund, Bankers Trust
will not inquire or take into consideration whether an issuer of securities
proposed for purchase or sale by the Fund is a customer of Bankers Trust, its
parent or its subsidiaries or affiliates and, in dealing with its customers,
Bankers Trust, its parent, subsidiaries and affiliates will not inquire or take
into consideration whether securities of such customers are held by any fund
managed by Bankers Trust or any such affiliate.
The prospectus contains disclosure as to the amount of Bankers Trust's
investment advisory and administration and services fees, including waivers
thereof. Bankers Trust may not recoup any of its waived investment advisory or
administration and services fees. Such waivers by Bankers Trust shall stay in
effect for at least 12 months.
25
<PAGE>
Administrator
Under its Administration and Services Agreement with the Trust, Bankers Trust
calculates the net asset value of the Fund and generally assists the Board of
Trustees of the Trust in all aspects of the administration and operation of the
Trust. The Administration and Services Agreement provides for the Trust to pay
Bankers Trust a fee, computed daily and paid monthly based on a percentage of
the average daily net assets of the shares.
Under the Administration and Services Agreements, the Adviser is obligated on a
continuous basis to provide such administrative services as the Board of
Trustees of the Trust reasonably deem necessary for the proper administration of
the Trust. The Adviser will: generally assist in all aspects of the Fund's
operations; supply and maintain office facilities (which may be in the Adviser's
own offices), statistical and research data, data processing services, clerical,
accounting, bookkeeping and recordkeeping services (including without limitation
the maintenance of such books and records as are required under the 1940 Act and
the rules thereunder, except as maintained by other agents), custodial and
transfer agency services, executive and administrative services, and stationery
and office supplies; prepare reports to shareholders or investors; supply
financial information and supporting data for reports to and filings with the
SEC and various state Blue Sky authorities; supply supporting documentation for
meetings of the Board of Trustees; provide monitoring reports and assistance
regarding compliance with Declarations of Trust, by-laws, investment objectives
and policies and with Federal and state securities laws; arrange for appropriate
insurance coverage; calculate net asset values, net income and realized capital
gains or losses; and negotiate arrangements with, and supervise and coordinate
the activities of, agents and others to supply services.
Pursuant to a sub-administration agreement, (the "Sub-Administration Agreement")
FSC performs such sub-administration duties for the Trust as from time to time
may be agreed upon by the Adviser and FSC. The Sub-Administration Agreement
provides that FSC will receive such compensation as from time to time may be
agreed upon by FSC and Bankers Trust. All such compensation will be paid by the
Adviser.
For the fiscal years ended September 30, 1998, 1997, and 1996. Bankers Trust
earned ________, $747,443 and $502,895, respectively, as compensation for
administrative and other services provided to the Fund. During the same periods,
Bankers Trust reimbursed _______, $304,491 and $94,051, respectively, to the
Fund to cover expenses.
For the fiscal years ended September 30, 1996 and the period from January 1,
1995 to September 30, 1995, Bankers Trust earned $188,579 and $74,224,
respectively, as compensation for administrative and other services provided to
the Portfolio.
Bankers Trust has agreed that if in any fiscal year the aggregate expenses of
the Fund (including fees pursuant to the Advisory Agreement, but excluding
interest, taxes, brokerage and, if permitted by the relevant state securities
commissions, extraordinary expenses) exceed the expense limitation of any state
having jurisdiction over the Fund, Bankers Trust will reimburse the Fund for the
excess expense to the extent required by state law. As of the date of this SAI,
the most restrictive annual expense limitation applicable to any Fund or Class
is 2.50% of the Fund's or Class' first $30 million of average annual net assets,
2.00% of the next $70 million of average annual net assets and 1.50% of the
remaining average annual net assets.
Distributor
ICC Distributors is the principal distributor for shares of the Fund. ICC
Distributors is a registered broker/dealer and is unaffiliated with Bankers
Trust. The principal business address of ICC Distributors is P.O. Box 7558,
Portland, Maine 04101.
Service Agent
All shareholders must be represented by a Service Agent. The Adviser acts as a
Service Agent pursuant to its Administration and Services Agreement with the
Trust and receives no additional compensation from the Fund for such shareholder
services. The service fees of any other Service Agents, including
broker-dealers, will be paid by the Adviser from its fees. The services provided
by a Service Agent may include establishing and maintaining shareholder
accounts, processing purchase and redemption transactions, arranging for bank
wires, performing shareholder sub-accounting, answering client inquiries
regarding the Trust, assisting clients in changing dividend options, account
26
<PAGE>
designations and addresses, providing periodic statements showing the client's
account balance, transmitting proxy statements, periodic reports, updated
prospectuses and other communications to shareholders and, with respect to
meetings of shareholders, collecting, tabulating and forwarding to the Trust
executed proxies and obtaining such other information and performing such other
services as the Administrator or the Service Agent's clients may reasonably
request and agree upon with the Service Agent. Service Agents may separately
charge their clients additional fees only to cover provision of additional or
more comprehensive services not already provided under the Administration and
Services Agreement with the Adviser, or of the type or scope not generally
offered by a mutual fund, such as cash management services or enhanced
retirement or trust reporting. In addition, investors may be charged a
transaction fee if they effect transactions in Fund shares through a broker or
agent. Each Service Agent has agreed to transmit to shareholders, who are its
customers, appropriate disclosures of any fees that it may charge them directly.
Custodian and Transfer Agent
Bankers Trust, 130 Liberty Street (One Bankers Trust Plaza), New York, New York
10006, serves as Custodian for the Trust pursuant to the administration and
services agreements. As Custodian, it holds the Fund's assets. Bankers Trust
also serves as transfer agent of the Trust pursuant to the respective
administration and services agreement. Under its transfer agency agreement with
the Trust, Bankers Trust maintains the shareholder account records for each
Class of Shares of the Fund, handles certain communications between shareholders
and the Trust and causes to be distributed any dividends and distributions
payable by the Trust. Bankers Trust may be reimbursed by the Fund for its
out-of-pocket expenses. Bankers Trust will comply with the self-custodian
provisions of Rule 17f-2 under the 1940 Act.
Use of Name
The Trust and Bankers Trust have agreed that the Trust may use "BT" as part of
its name for so long as Bankers Trust serves as investment adviser to the Fund.
The Trust has acknowledged that the term "BT" is used by and is a property right
of certain subsidiaries of Bankers Trust and that those subsidiaries and/or
Bankers Trust may at any time permit others to use that term.
The Trust may be required, on 60 days' notice from Bankers Trust at any time, to
abandon use of the acronym "BT" as part of its name. If this were to occur, the
Trustees would select an appropriate new name for the Trust, but there would be
no other material effect on the Trust, its shareholders or activities.
Banking Regulatory Matters
Bankers Trust has been advised by its counsel that in its opinion Bankers Trust
may perform the services for the Fund contemplated by the Advisory Agreement and
other activities for the Fund described in the Prospectus and this SAI without
violation of the Glass-Steagall Act or other applicable banking laws or
regulations. However, counsel has pointed out that future changes in either
Federal or state statutes and regulations concerning the permissible activities
of banks or trust companies, as well as future judicial or administrative
decisions or interpretations of present and future statutes and regulations,
might prevent Bankers Trust from continuing to perform those services for the
Trust. State laws on this issue may differ from the interpretations of relevant
Federal law and banks and financial institutions may be required to register as
dealers pursuant to state securities law. If the circumstances described above
should change, the Board of Trustees would review the relationship with Bankers
Trust and consider taking all actions necessary in the circumstances.
Counsel and Independent Accountants
Willkie Farr & Gallagher, 787 Seventh Avenue, New York, New York 10019-6099,
serves as Counsel to the Trust. PricewaterhouseCoopers LLP, 1100 Main Street,
Suite 900, Kansas City, Missouri 64105 acts as Independent Accountants of the
Trust.
ORGANIZATION OF THE TRUST
The Trust was organized on February 28, 1992 under the laws of the Commonwealth
of Massachusetts. The Fund was established and designated as a separate series
of the Trust on June 23, 1992. The Trust
27
<PAGE>
offers shares of a beneficial interest of separate series, par value $0.001 per
share. On August 6, 1996, the Trustees of the Trust established and designated
two classes of shares of beneficial interests of the Fund -- the Advisor class
of shares and the Investment class of shares. The shares of the other series of
the Trust are offered through separate prospectuses. No series of shares has any
preference over any other series.
The Trust may create and issue additional series of shares. The Trust's
Declaration of Trust permits the Trustees to divide or combine the shares into a
greater or lesser number of shares without thereby changing the proportionate
beneficial interest in series. Each share represents an equal proportionate
interest in a series with each other share. Shares when issued are fully paid
and non-assessable, except as set forth below. Shareholders are entitled to one
vote for each share held.
Shares of the Trust do not have cumulative voting rights, which means that
holders of more than 50% of the shares voting for the election of Trustees can
elect all Trustees. Shares are transferable but have no preemptive, conversion
or subscription rights. Shareholders generally vote by Fund, except with respect
to the election of Trustees and the ratification of the selection of independent
accountants.
The Trust is an entity commonly known as a "Massachusetts business trust." Under
Massachusetts law, shareholders of such a business trust may, under certain
circumstances, be held personally liable as partners for its obligations.
However, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which both inadequate
insurance existed and the Trust itself was unable to meet its obligations. The
Trust's Declaration of Trust disclaims shareholder liability for acts or
obligations of the Trust and requires that notice of this disclaimer be given in
each agreement, obligation or instrument entered into or executed by the Trust
or a Trustee. The Declaration of Trust provides for indemnification from the
Trust's property for all losses and expenses of any shareholder held personally
liable for the obligations of the Trust. Thus, the risk of a shareholder's
incurring financial loss on account of shareholder liability is limited to
circumstances in which the Trust itself would be unable to meet its obligations,
a possibility that the Trust believes is remote. Upon payment of any liability
incurred by the Trust, the shareholder paying the liability will be entitled to
reimbursement from the general assets of the Trust. The Trustees intend to
conduct the operations of the Trust in a manner so as to avoid, as far as
possible, ultimate liability of the shareholders for liabilities of the Trust.
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 a Fund or Class is required on any
matter affecting the Fund or Class on which shareholders are entitled to vote.
Shareholders of a Fund or Class are not entitled to vote on Trust matters that
do not affect that Fund or Class, respectively. There normally will be no
meetings of shareholders for the purpose of electing Trustees unless and until
such time as less than a majority of Trustees holding office have been elected
by shareholders, at which time the Trustees then in office will call a
shareholders' meeting for the election of Trustees. Any Trustee may be removed
from office upon the vote of shareholders holding at least two-thirds of the
Trust's outstanding shares at a meeting called for that purpose. The Trustees
are required to call such a meeting upon the written request of shareholders
holding at least 10% of the Trust's outstanding shares.
As of _____, 1998, ___________, owned approximately ___% of the voting
securities for the Fund, and therefore, may for certain purposes, be deemed to
control the Fund and be able to affect the outcome of certain matters presented
for a vote of its insurance.
TAXATION
Taxation of the Fund
The Trust intends to qualify annually and to elect the Fund to be treated as a
regulated investment company under the Code.
As a regulated investment company, the Fund will not be subject to U.S. Federal
income tax on its investment company taxable income and net capital gains (the
excess of net long-term capital gains over net short-term capital losses), if
any, that it distributes to shareholders. The Fund intends to distribute to its
shareholders, at least annually, substantially all of its investment company
taxable income and net capital gains, and therefore does not anticipate
incurring a Federal income tax liability.
28
<PAGE>
If for any taxable year the Fund does not qualify for the special federal income
tax treatment afforded regulated investment companies, all of its taxable income
will be subject to federal income tax at regular corporate rates (without any
deduction for distributions to its shareholders). In such event, dividend
distributions, would be taxable to shareholders to the extent of current
accumulated earnings and profits, and would be eligible for the dividends
received deduction for corporations in the case of corporate shareholders.
Each Fund shareholder will receive, if appropriate, various written notices
after the close of the Fund's prior taxable year as to the federal income status
of his dividends and distributions which were received from the Fund during the
Fund's prior taxable year. Shareholders should consult their tax advisers as to
any state and local taxes that may apply to these dividends and distributions.
The dollar amount of dividends excluded from federal income taxation and the
dollar amount subject to such income taxation, if any, will vary for each
shareholder depending upon the size and duration of each shareholder's
investment in the Fund. To the extent that the Fund earns taxable net investment
income, the Fund intends to designate as taxable dividends the same percentage
of each dividend as its taxable net investment income bears to its total net
investment income earned. Therefore, the percentage of each dividend designated
as taxable, if any, may vary.
Foreign Securities
Income from investments in foreign stocks or securities may be subject to
foreign taxes. Tax conventions between certain countries and the United States
may reduce or eliminate such taxes. It is impossible to determine the effective
rate of foreign tax in advance since the amount of the Fund's assets to be
invested in various countries will vary.
Distributions
Distributions from the Fund's income and short-term capital gains are taxed as
dividends, and long-term capital gain distributions are taxed as long-term
capital gains. The Fund's capital gain distributions are taxable when they are
paid, whether you take them in cash or reinvest them in additional Shares.
Distributions declared to shareholders of record in October, November or
December and paid in January are taxable as if paid on December 31. The Fund
will send each shareholder a tax statement by January 31 showing the tax status
of the distributions received on the past year.
You may realize a capital gain or loss when you redeem (sell) or exchange
Shares. Because the tax treatment also depends on your purchase price and your
personal tax position, you should keep your regular account statements to use in
determining your tax.
On the ex-date for a distribution from capital gains, the Fund's Share value is
reduced by the amount of the distribution. If you buy Shares just before the
ex-date ("buying a dividend"), you will pay the full price for the Shares and
then receive a portion of the price back as a taxable distribution.
Other Taxation
The Trust is organized as a Massachusetts business trust and, under current law,
neither the Trust nor the Fund is liable for any income or franchise tax in the
Commonwealth of Massachusetts, provided that the Fund continues to qualify as a
regulated investment company under Subchapter M of the Code.
Fund shareholders may be subject to state and local taxes on the Fund
distributions. Shareholders are advised to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in the Fund.
FINANCIAL STATEMENTS
The financial statements for the Fund for the period ended September 30, 1998,
are incorporated herein by reference to the Fund's Annual Report dated September
30, 1998. A copy of the Annual Report may be obtained without charge by
contacting the Fund.
29
<PAGE>
APPENDIX
COMMERCIAL PAPER RATINGS
S&P's Commercial Paper Ratings
A is the highest commercial paper rating category utilized by S&P, which uses
the numbers 1+, 1, 2 and 3 to denote relative strength within its A
classification. Commercial paper issues rated A by S&P have the following
characteristics: Liquidity ratios are better than industry average. Long-term
debt rating is A or better. The issuer has access to at least two additional
channels of borrowing. Basic earnings and cash flow are in an upward trend.
Typically, the issuer is a strong company in a well-established industry and has
superior management.
Moody's Commercial Paper Ratings
Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics: leading
market positions in well-established industries; high rates of return on funds
employed; conservative capitalization structures with moderate reliance on debt
and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; well-established access to
a range of financial markets and assured sources of alternate liquidity.
Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or related supporting institutions) have an acceptable
capacity for repayment of short-term promissory obligations. The effect of
industry characteristics and market composition may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and the requirement for relatively high financial
leverage. Adequate alternate liquidity is maintained.
Fitch Investors Service and Duff & Phelps Commercial Paper Ratings
Commercial paper rated "Fitch-1" is considered to be the highest grade paper and
is regarded as having the strongest degree of assurance for timely payment.
"Fitch-2" is considered very good grade paper and reflects an assurance of
timely payment only slightly less in degree than the strangest issue.
Commercial paper issues rated "Duff 1" by Duff & Phelps, Inc. have the following
characteristics: very high certainty of timely payment, excellent liquidity
factors supported by strong fundamental protection factors, and risk factors
which are very small. Issues rated "Duff 2" have a good certainty of timely
payment, sound liquidity factors and company fundamentals, small risk factors,
and good access to capital markets.
30
<PAGE>
Investment Adviser and Administrator
BANKERS TRUST COMPANY
Distributor
ICC DISTRIBUTORS, INC.
Custodian and Transfer Agent
BANKERS TRUST COMPANY
Independent Accountants
PRICEWATERHOUSECOOPERS LLP
Counsel
WILLKIE FARR & GALLAGHER
--------------------
No person has been authorized to give any information or to make any
representations other than those contained in the Trust's Prospectus, its SAIs
or the Trust's official sales literature in connection with the offering of the
Trust's shares and, if given or made, such other information or representations
must not be relied on as having been authorized by the Trust. Neither the
Prospectus nor this SAI constitutes an offer in any state in which, or to any
person to whom, such offer may not lawfully be made.
--------------------
CUSIP # 055922751
STA518400 (1/98)
PART C OTHER INFORMATION
ITEM 23.
(a) (i) Declaration of Trust of the Trust; 5 (ii) Second Amended and
Restated Designation of Series; 5 (iii) Third Amended and Restated
Designation of Series; 5
(iv) Fourth Amended and Restated Establishment and
Designation of Series; 5
(v) Fifth Amended and Restated Establishment and
Designation of Series; 5
(vi) Sixth Amended and Restated Establishment and
Designation of Series; 6
(vii) Seventh Amended and Restated Establishment and
Designation of Series; 6
(viii) Eighth Amended and Restated Establishment and
Designation of Series; 8
(b) By-Laws of the Trust; 5
(c) Not Applicable
(d) (i) Conformed Copy of Investment Advisory Agreement; 8
(ii) Copy of Exhibit A to Investment Advisory Agreement; 8
(e) Conformed Copy of Distribution Agreement; 14
(f) Not Applicable
- -----------------------------------
+ All exhibits have been filed electronically.
5. Incorporated by reference to Post-Effective Amendment No. 5 to Registrant's
Registration Statement as filed with the Commission on July 31, 1995.
6. Incorporated by reference to Post-Effective Amendment No. 11 to
Registrant's Registration Statement as filed with the Commission on
September 27, 1996.
8. Incorporated by reference to Post-Effective Amendment No. 14 to
Registrant's Registration Statement as filed with the Commission on
February 25, 1997.
14. Incorporated by reference to Post-Effective Amendment No. 22 to
Registrant's Registration Statement as filed with the Commission on
November 24, 1998.
<PAGE>
(g) (i) Conformed copy of Custodian Agreement between the
Registrant and Bankers Trust Company; 11
(ii) Conformed copy of Amendment #1 to Exhibit A to the Custodian
Agreement between the Registrant and Bankers
Trust Company; 12
(iii) Conformed copy of Cash Services Agreement between the
Registrant and Bankers Trust Company; 13
(h) Administration and Services Agreement; 3
(i) Exhibit D to the Administration and Services
Agreement; 14
(ii) Conformed Copy of Amended and Restated Shareholder
Services Plan for BT PreservationPlus Fund; 14 (iii) Conformed
copy of Agreement to Provide Shareholder
Services for BT PreservationPlus Fund; 14
(i) Conformed Copy of Opinion and Consent of Kirkpatrick & Lockhart LLP,
with respect to BT PreservationPlus Fund, formerly BT RetirementPlus
Fund; 8
(j) Not Applicable
(k) Not Applicable
(l) Investment representation letters of initial shareholders of
the Trust; 1
(m) Not Applicable
(n) Not Applicable
(o) (i) Multiple Class Expense Allocation Plan Adopted
Pursuant of Rule 18f-3; 8
(ii) Revised Multiple Class Expense Allocation Plan Adopted
Pursuant to Rule 18f-3; 12
(p) Conformed copies of Power of Attorney of Registrant. 9
- -----------------------------------
+ All exhibits have been filed electronically.
1. Incorporated by reference herein to Pre-Effective Amendment No. 1 to
Registrant's Registration Statement as filed with the Commission on June 9,
1992.
3. Incorporated by reference to Post-Effective Amendment No. 3 to Registrant's
Registration Statement as filed with the Commission on April 30, 1993.
8. Incorporated by reference to Post-Effective Amendment No. 14 to
Registrant's Registration Statement as filed with the Commission on
February 25, 1997.
9. Incorporated by reference to Post-Effective Amendment No. 15 to
Registrant's Registration Statement as filed with the Commission on March
17, 1997.
11. Incorporated by reference to Post-Effective Amendment No. 18 to
Registrant's Registration Statement as filed with the Commission July 1,
1997.
12. Incorporated by reference to Post-Effective Amendment No. 19 to
Registrant's Registration Statement as filed with the Commission on January
28, 1998.
13. Incorporated by reference to Post-Effective Amendment No. 21 to
Registrant's Registration Statement as filed with the Commission on June
30, 1998.
14. Incorporated by reference to Post-Effective Amendment No. 22 to
Registrant's Registration Statement as filed with the Commission on
November 24, 1998.
<PAGE>
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT:
Not Applicable
ITEM 25. INDEMNIFICATION; 8
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER:
Bankers Trust serves as investment adviser to the Fund's Portfolio. Bankers
Trust, a New York banking corporation, is a wholly owned subsidiary of Bankers
Trust Corporation. Bankers Trust conducts a variety of commercial banking and
trust activities and is a major wholesale supplier of financial services to the
international institutional market. To the knowledge of the Trust, none of the
directors or officers of Bankers Trust, except those set forth below, is or has
been at anytime during the past two fiscal years engaged in any other business,
profession, vocation or employment of a substantial nature, except that certain
directors and officers also hold various positions with and engage in business
for Bankers Trust Corporation. Set forth below are the names and principal
businesses of the directors and officers of Bankers Trust who are or during the
past two fiscal years have been engaged in any other business, profession,
vocation or employment of a substantial nature. These persons may be contacted
c/o Bankers Trust Company, 130 Liberty Street, New York, New York 10006.
- -----------------------------------
+ All exhibits have been filed electronically.
8. Incorporated by reference to Post-Effective Amendment No. 14 to
Registrant's Registration Statement as filed with the Commission on
February 25, 1997.
<PAGE>
George B. Beitzel, International Business Machines Corporation, Old Orchard
Road, Armonk, NY 10504. Director, Bankers Trust Company; Retired Senior Vice
President and Director, International Business Machines Corporation; Director,
Computer Task Group; Director, Phillips Petroleum Company; Director, Caliber
Systems, Inc. (formerly, Roadway Services Inc.); Director, Rohm and Haas
Company; Director, TIG Holdings; Chairman Emeritus of Amherst College; and
Chairman of the Colonial Williamsburg Foundation.
Richard H. Daniel, Bankers Trust Company, 130 Liberty Street, New York, New York
10006. Vice Chairman and Chief Financial Officer, Bankers Trust Company and
Bankers Trust Corporation; Beneficial owner, General Partner, Daniel Brothers,
Daniel Lingo & Assoc., Daniel Pelt & Assoc.; Beneficial owner, Rhea C. Daniel
Trust.
Philip A. Griffiths, Bankers Trust Company, 130 Liberty Street, New York, New
York 10006. Director, Institute for Advanced Study; Director, Bankers Trust
Company; Chairman, Committee on Science, Engineering and Public Policy of the
National Academies of Sciences and Engineering & the Institute of Medicine;
Chairman and member, Nominations Committee and Committee on Science and
Engineering Indicators, National Science Board; and Trustee, North Carolina
School of Science and Mathematics and the Woodward Academy.
William R. Howell, J.C. Penney Company, Inc., P.O. Box 10001, Plano, TX
75301-0001. Chairman Emeritus, J.C. Penney Company, Inc.; Director, Bankers
Trust Company; Director, Exxon Corporation; Director, Halliburton Company;
Director, Warner-Lambert Corporation; Director, The Williams Companies, Inc.;
and Director, National Retail Federation.
Vernon E. Jordan, Jr., Akin, Gump, Strauss, Hauer & Feld, LLP, 1333 New
Hampshire Ave., N.W., Washington, DC 20036. Senior Partner, Akin, Gump, Strauss,
Hauer & Feld, LLP; Director, Bankers Trust Company; Director, American Express
Company; Director, Dow-Jones, Inc.; Director, J.C. Penney Company, Inc.;
Director, Revlon Group Incorporated; Director, Ryder System, Inc.; Director,
Sara Lee Corporation; Director, Union Carbide Corporation; Director, Xerox
Corporation; Trustee, Brookings Institution; Trustee, The Ford Foundation; and
Trustee, Howard University.
David Marshall, 130 Liberty Street, New York, New York 10006. Chief
Information Officer and Executive Vice President, Bankers Trust Corporation;
Senior Managing Director, Bankers Trust Company.
Hamish Maxwell, Philip Morris Companies Inc., 120 Park Avenue, New York, NY
10006. Retired Chairman and Chief Executive Officer, Philip Morris Companies
Inc.; Director, Bankers Trust Company; Director, The News Corporation Limited;
Director, Sola International Inc.; and Chairman, WWP Group plc.
Frank N. Newman, Bankers Trust Company, 130 Liberty Street, New York, New York
10006. Chairman of the Board, Chief Executive Officer and President, Bankers
Trust Corporation and Bankers Trust Company; Director, Bankers Trust Company;
Director, Dow-Jones, Inc.; and Director, Carnegie Hall.
N.J. Nicholas Jr., 745 Fifth Avenue, New York, NY 10020. Director, Bankers
Trust Company; Director, Boston Scientific Corporation; and Director, Xerox
Corporation.
Russell E. Palmer, The Palmer Group, 3600 Market Street, Suite 530,
Philadelphia, PA 19104. Chairman and Chief Executive Officer of The Palmer
Group; Director, Bankers Trust Company; Director, Allied-Signal Inc.; Director,
Federal Home Loan Mortgage Corporation; Director, GTE Corporation; Director, The
May Department Stores Company; Director, Safeguard Scientifics, Inc.; and
Trustee, University of Pennsylvania.
Donald L. Staheli, Bankers Trust Company, 130 Liberty Street, New York, New York
10006. Chairman of the Board and Chief Executive Officer, Continental Grain
Company; Director, Bankers Trust Company; Director, ContiFinancial Corporation;
Director, Prudential Life Insurance Company of America; Director, Fresenius
Medical Care, A.g.; Director, America-China Society; Director, National
Committee on United States-China Relations; Director, New York City Partnership;
Chairman, U.S.-China Business Council; Chairman, Council on Foreign Relations;
Chairman, National Advisor Council of Brigham Young University's Marriott School
of Management; Vice Chairman, The Points of Light Foundation; and Trustee,
American Graduate School of International Management.
Patricia Carry Stewart, c/o Office of the Secretary, 130 Liberty Street, New
York, NY 10006. Director, Bankers Trust Company; Director, CVS Corporation;
Director, Community Foundation for Palm Beach and Martin Counties; Trustee
Emeritus, Cornell University.
George J. Vojta, Bankers Trust Company, 130 Liberty Street, New York, NY 10006.
Vice Chairman, Bankers Trust Corporation and Bankers Trust Company; Director,
Bankers Trust Company; Director; Alicorp S.A.; Director; Northwest Airlines;
Director, Private Export Funding Corp.; Director, New York State Banking Board;
Director, St. Lukes-Roosevelt Hospital Center; Partner, New York City
Partnership; and Chairman, Wharton Financial Services Center.
Paul A. Volcker, Bankers Trust Company, 130 Liberty Street, New York, New York
10006. Director, Bankers Trust Company; Director, American Stock Exchange;
Director, Nestle S.A.; Director, Prudential Insurance Company; Director, UAL
Corporation; Chairman, Group of 30; North American Chairman, Trilateral
Commission; Co-Chairman, Bretton Woods Committee; Co-Chairman, U.S./Hong Kong
Economic Cooperation Committee; Director, American Council on Germany; Director,
Aspen Institute; Director, Council on Foreign Relations; Director, The Japan
Society; and Trustee, The American Assembly.
Melvin A. Yellin, Bankers Trust Company, 130 Liberty Street, New York, New York
10006. Senior Managing Director and General Counsel of Bankers Trust Corporation
and Bankers Trust Company; Director, 1136 Tenants Corporation; and Director, ABA
Securities Association.
Item 27. PRINCIPAL UNDERWRITERS:
(a)ICC Distributors, Inc., the Distributor for shares of the Registrant,
also acts as principal underwriter for the following open-end
investment companies: BT Advisor Funds, BT Institutional Funds, and BT
Investment Funds.
<PAGE>
(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT
John Y. Keffer ......President
Two Portland Square
Portland, ME 04101
Sara M. Morris ......Treasurer
Two Portland Square
Portland, ME 04101
David I. Goldstein ......Secretary
Two Portland Square
Portland, ME 04101
Benjamin L. Niles ......Vice President
Two Portland Square
Portland, ME 04101
Margaret J. Fenderson ......Assistant Treasurer
Two Portland Square
Portland, ME 04101
Dana L. Lukens ......Assistant Secretary
Two Portland Square
Portland, ME 04101
Nanette K. Chern ......Chief Compliance Officer
Two Portland Square
Portland, ME 04101
(c) None
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS:
BT Pyramid Mutual Funds: ......Federated Investors Tower
(Registrant) ......1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Bankers Trust Company: ......130 Liberty Street
(Custodian, Investment Adviser New York, NY 10006
and Administrator)
Investors Fiduciary Trust Company: .127 West 10th Street,
(Transfer Agent and Dividend ......Kansas City, MO 64105.
Disbursing Agent)
ICC Distributors, Inc.: ......Two Portland Square
(Distributor) ......Portland, ME 04101
<PAGE>
ITEM 29. MANAGEMENT SERVICES:
Not Applicable
ITEM 30. UNDERTAKINGS
The Registrant undertakes to comply with Section 16c of the 1940 Act as though
such provisions of the Act were applicable to the Registrant except that the
request referred to in the third full paragraph thereof may only be made by
shareholders who hold in the aggregate at least 10% of the outstanding shares of
the Registrant, regardless of the net asset value or values of shares held by
such requesting shareholders.
Registrant hereby undertakes to furnish each person to whom a prospectus is
delivered with a copy of the Registrant's latest annual report to shareholders,
upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, the Registrant, BT PYRAMID MUTUAL FUNDS,
has duly caused this Amendment to its Registration Statement to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of Pittsburgh
and the Commonwealth of Pennsylvania on the 24th day of November, 1998.
BT PYRAMID MUTUAL FUNDS
By: /s/ Jay S. Neuman
Jay S. Neuman, Secretary
November 24, 1998
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to its Registration Statement has been signed below by the following person in
the capacity and on the date indicated:
NAME TITLE. DATE
By: /s/ Jay S. Neuman Attorney in Fact November 24, 1998
Jay S. Neuman For the Persons
SECRETARY Listed Below
/s/RONALD M. PETNUCH* President and Treasurer
Ronald M. Petnuch (Chief Executive Officer,
Principal Financial and Accounting
Officer)
/s/HARRY VAN BENSCHOTEN* Trustee
Harry Van Benschoten
/s/MARTIN J. GRUBER* Trustee
Martin J. Gruber
/s/ KELVIN J. LANCASTER* Trustee
Kelvin J. Lancaster
* By Power of Attorney
