o BT PYRAMID MUTUAL FUNDS o
BT INVESTMENT
EQUITY APPRECIATION FUND
ANNUAL REPORT
SEPTEMBER O 1998
<PAGE>
Equity Appreciation Fund
Table of Contents
Letter to Shareholders 3
BT Investment Equity Appreciation Fund
Schedule of Portfolio Investments 6
Statement of Assets and Liabilities 8
Statement of Operations 8
Statements of Changes in Net Assets 9
Financial Highlights 9
Notes to Financial Statements 10
Report of Independent Accountants 12
Tax Information 12
-------------------
The Fund is not insured by the FDIC and is not a deposit,
obligation of or guaranteed by Bankers Trust Company. The
Fund is subject to investment risks, including possible
loss of principal amount invested.
-------------------
2
<PAGE>
Equity Appreciation Fund
Letter to Shareholders
We are pleased to present you with this annual report for the BT Investment
Equity Appreciation Fund (the "Fund"), providing a review of the market, the
portfolio, and our outlook as well as a complete financial summary of the Fund's
operations.
MARKET ACTIVITY
Overall, the twelve months ended September 30, 1998 were a period of significant
volatility for mid capitalization growth stocks. Equities in general were on a
roller coaster during the year, as concerns roiling the markets in the first
half only heightened in the second. The midcap sector in particular lagged its
large cap brethren, but outperformed the small cap stocks.
At the start of the fourth quarter of 1997, midcap growth stocks were somewhat
extended, following a five month period during which they had produced 30% plus
performance. The effects of the Asian financial crises began to spread. Midcap
growth stocks came under pressure, as U.S. investors sought both to lock in
gains and to discount the expected negative impact these crises would have on
the earnings growth of companies with significant exposure to Asia--especially
the technology stocks. Investors tended to turn their focus to large cap names
and more value-oriented stocks.
As the first quarter of 1998 progressed, investor sentiment toward midcap growth
stocks improved for a number of reasons:
o The impact of the Asian crisis became more clear, and the situation did not
appear to be as bad as many had expected.
o Thanks to strong internal growth, the earnings growth of many companies with
international exposure was sustained despite the scare from overseas.
o Those companies that were more negatively impacted had lowered expectations
enough that investors were no longer as worried about the effects.
o Relative valuations of midcap stocks had been dramatically reduced, reaching
levels even cheaper than they were in April 1997, at which point they were at
seven-year lows.
o What may be called the virtuous circle of rising prices and improving
sentiment boosted midcap growth stocks' performance.
For all these reasons, plus sustained strong U.S. economic conditions, few signs
of inflation, and interest rate fears at bay, midcap growth stocks participated
with other segments of the stock market in a robust rally.
Renewed fears of a Federal Reserve Board interest rate increase and continued
financial troubles in Asian countries turned investor sentiment negative and
drove the market lower as the second calendar quarter progressed. There was a
clear bias toward liquidity and thus larger cap stocks. Ironically, the earnings
growth outlook for larger cap stocks was reduced during the first half of the
calendar year, creating a notable gap as compared to the still robust earnings
growth outlook for many smaller, emerging growth companies. The already
compelling valuation gap continued to widen.
The third calendar quarter witnessed a continuation of market volatility,
highlighted by several factors:
o Russia's financial collapse and fresh concerns of contagion to Latin America
from Asia's ongoing financial crisis were added to investors' list of
troublesome events.
o There was renewed focus on slowing growth in U.S. corporate earnings and in
the overall economy, as well-publicized problems in high technology and basic
industries spread to major global consumer companies, such as Coca Cola and
Gillette.
o Acknowledging the weakening global environment and its potential impact on the
U.S. economy, the Federal Reserve Board lowered the fed funds rate by 0.25% on
September 29th and now seems focused on preventing a credit crunch as seen
earlier in the decade.
o News of major U.S. and European financial institutions' direct exposure to
emerging markets and their secondary exposure to hedge funds that aggressively
place leverage bets abroad began to spread.
In all, investor sentiment, punctuated by fear and uncertainty, kept a premium
on larger caps' liquidity and perceived safety through July. In August, the
larger caps finally succumbed to the negative sentiment, bringing all of the
market sectors down with them. This ultimately set the market up for a
short-term relief rally in September.
TEN LARGEST STOCK HOLDINGS
America Online, Inc. At Home Corp. - Series A
McKesson Corporation Compuware Corp.
Elan Corp. plc - ADR Outdoor Systems, Inc.
Ace Ltd. Clear Channel Communications, Inc.
Watson Pharmaceuticals, Inc. Global Crossing Ltd.
INVESTMENT REVIEW
While the Fund did outperform its category average for the twelve month period,
it was still hampered by a negative investor sentiment toward emerging growth
stocks in general. We stayed true to the Fund's growth-oriented investment style
throughout, as has been our long-standing policy. Of course, when midcap growth
stocks are in favor, as was the case in the first calendar quarter, the Fund
benefits. It is well worth noting that strong specific stock selection and
sector positioning drove the Fund's outperformance not only in the first
calendar quarter, but also in the second, even as investor sentiment was
reversing yet again.
3
<PAGE>
Equity Appreciation Fund
Letter to Shareholders
<TABLE>
<CAPTION>
Periods ended September 30, 1998 Cumulative Total Returns Average Annual Total Returns
- -----------------------------------------------------------------------------------------------------
Past 1 Past 3 Since Past 1 Past 3 Since
year years inception year years inception
- -----------------------------------------------------------------------------------------------------
<S><C>
BT Investment Equity Appreciation Fund* -10.68% 16.33% 64.50% -10.68% 5.17% 10.54%
(inception 10/12/93)
- -----------------------------------------------------------------------------------------------------
S&P 400 Midcap Index** -6.07% 48.96% 90.35% -6.07% 14.21% 13.99%
- -----------------------------------------------------------------------------------------------------
Lipper MidCap Average*** -11.95% 30.71% 65.73% -11.95% 9.10% 10.59%
- -----------------------------------------------------------------------------------------------------
</TABLE>
More specifically, in the last quarter of 1997, the Fund was underweight in the
outperforming value-oriented sectors of utilities, financial, and consumer
staples and was overweight in the poorly performing sectors of healthcare and
technology. However, that same strategy worked to the Fund's favor in the next
quarter, when technology and healthcare were among the best performing sectors,
as were communications services, transportation, and consumer cyclicals, where
the Fund was also overweight. The Fund's overweight position in energy, the only
sector posting a loss during this six month period, negatively impacted
performance.
In the second half of the fiscal year, the equity sector roller coaster
continued. The Fund maintained an overweight position in three of the four best
performing sectors in each of the last two quarters--transportation, technology,
and consumer cyclicals in the June 30th quarter; communications services,
technology, and health care in the September 30th quarter. Energy continued to
be a drag on relative performance in the quarter ended June 30th, but moving to
an underweight position in this sector benefited the Fund in the quarter ended
September 30th.
MANAGER OUTLOOK
Although we expect future periods of volatility in the marketplace while global
economic events run their course, there have been several developments in the
last few weeks that indicate an improving investment outlook. These include
easing of monetary policy by the U.S. Federal Reserve Board, some progress on
Japanese bank reform, and a slight reversal of the recent credit crunch. We also
remain optimistic regarding emerging growth stocks in general. Midcap
fundamentals remain strong, earnings growth superior, and relative valuations
attractive. In particular, the companies in the Fund's portfolio are, overall,
experiencing strong fundamental growth in earnings, are largely reliant upon the
domestic economy for growth, and are expressing upbeat outlooks for the coming
year.
Over the longer term, it has been shown that investors will pay for reasonably
priced earnings growth. It is important to remember that investors should take a
long-term view when investing in this segment of the market, as returns can be
volatile in the short term.
Given the recent high volatility in the stock market, it is also important to
keep in mind that at Bankers Trust we remain disciplined in our process, and we
continue to:
o focus on companies that offer compelling valuations relative to their growth
rates
- --------------------------------------------------------------------------------
Diversification of Investments
By Theme as of September 30, 1998
(percentages are based on market value)
[PIE CHART APPEARS HERE; SEE VALUES BELOW]
Money Market Fund 11% Managing the Information Age 5%
New Health Care Paradigm 9% Life Sciences Revolution 9%
Our Strengthening Financial Structure 9% Energizing the Globe 4%
Life on the Net 7% Consolidating America 8%
Telecommunications 9% Client Server Computing 6%
Interactive Media 6%
Other 17%+
- --------------
+ Includes themes with weightings of less than 4%.
- --------------------------------------------------------------------------------
o focus on companies that have strong, consistent earnings and revenue growth
o use extensive fundamental research--as well as our thematic approach and
screening process--to identify attractive investment opportunities in
unrecognized growth companies and sectors
o strictly adhere to our sell discipline to help mitigate risk, and
o use the volatility of the marketplace to our investors' advantage by
initiating or adding to positions on weakness.
We will continue to monitor economic conditions and their effect on financial
markets, as we seek capital growth over the long term.
We value your ongoing support of the BT Investment Equity Appreciation Fund and
look forward to continuing to serve your investment needs in the years ahead.
/s/ Anthony Takazawa
____________________
Anthony Takazawa
Portfolio Manager of the
BT Investment Equity Appreciation Fund
September 30, 1998
- --------------
* Performance quoted represents past performance. Investment return and
principal value will fluctuate, so that an investor's shares, when redeemed,
may be worth more or less than their original cost.
** The S&P 400 Midcap Index consists of 400 domestic stocks chosen for market
size, liquidity and industry group representation. Indices are unmanaged,
and investments cannot be made in an index.
*** Lipper figures represent the average of the total returns reported by all of
the mutual funds designated by Lipper Analytical Services, Inc., as falling
into the respective categories indicated. These figures do not reflect sales
charges.
4
<PAGE>
Equity Appreciation Fund
Performance Comparison
Comparison of Change in
Value of a $10,000 Investment
in the BT Investment Equity
Appreciation Fund and the
S&P MidCap 400 Index since
October 31, 1993.
Total Return for the Year
Ended September 30, 1998
One Year Since 10/12/93*
- -10.68% 10.54%**
* The Fund's inception date.
** Annualized.
Investment return and principal value may fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
[GRAPH APPEARS HERE - SEE PLOT POINTS BELOW]
BT Investment Equity S&P MidCap 400
Appreciation Fund - $16,450 Index - $19,035
Oct-93 $10,000 $10,000
Dec-93 9,899 10,233
Mar-94 9,657 9,844
Jun-94 9,051 9,485
Sep-94 9,939 10,217
Dec-94 10,242 9,866
Mar-95 10,909 10,664
Jun-95 12,111 11,605
Sep-95 14,283 12,737
Dec-95 14,095 12,919
Mar-96 14,262 13,715
Jun-96 15,354 14,110
Sep-96 16,061 14,521
Dec-96 15,448 15,400
Mar-97 13,679 15,171
Jun-97 15,771 17,408
Sep-97 18,603 20,199
Dec-97 17,650 20,432
Mar-98 19,815 22,682
Jun-98 16,450 19,035
Sep-98 16,450 19,035
Past performance is not indicative of future performance.
5
<PAGE>
Equity Appreciation Fund
Schedule of Portfolio Investments September 30, 1998
Shares Description Value
- ------ ----------- -----
COMMON STOCKS - 91.52%
America's Changing Leisure Time - 3.05%
42,600 Gemstar International Group * $ 1,975,575
51,000 Ryanair Holdings PLC - ADR * 1,746,750
------------
3,722,325
------------
Client Server Computing - 5.95%
45,444 Compuware Corp. * 2,675,516
20,900 Lexmark International Group, Inc.- Class A * 1,448,631
54,600 Platinum Technology, Inc. * 982,800
43,200 Tech Data Corporation * 2,162,700
------------
7,269,647
------------
Consolidating America - 8.07%
55,200 Clear Channel Communications, Inc. * 2,622,000
14,700 Heftel Broadcasting - Class A 554,925
136,262 Outdoor Systems, Inc. * 2,657,109
82,600 United Rentals, Inc.* 1,977,238
68,500 Univision Communications - Class A * 2,037,875
------------
9,849,147
------------
Energizing the Globe - 2.01%
117,600 Global Industries Ltd. * 1,359,750
83,100 Ocean Energy, Inc. * 1,090,688
------------
2,450,438
------------
Environmental Crisis - 3.15%
70,700 Allied Waste Industries, Inc. * 1,652,612
56,300 American Disposal Services, Inc. * 2,192,181
------------
3,844,793
------------
Interactive Media - 6.22%
27,700 Comsat Corporation 976,425
114,500 Learning Company, Inc. * 2,268,531
59,000 Scientific-Atlanta, Inc. 1,246,375
57,100 Snyder Communications, Inc. * 1,912,850
42,100 Young & Rubican, Inc. * 1,194,587
------------
7,598,768
------------
Life on the Net - 7.15%
36,400 America Online, Inc. 4,049,500
60,400 At Home Corp. - Series A * 2,891,650
33,500 CMG Information Services * 1,783,875
------------
8,725,025
------------
Life Sciences Revolution - 9.65%
38,400 Centocor, Inc. * 1,521,600
41,918 Elan Corp. plc - ADR * 3,020,716
53,600 Forest Laboratories - Class A * 1,842,500
82,500 Mylan Laboratories, Inc. 2,433,750
58,400 Watson Pharmaceuticals, Inc. * 2,963,800
------------
11,782,366
------------
Shares Description Value
- ------ ----------- -----
Managing the Information Age - 5.18%
89,900 Concord EFS, Inc.* $ 2,320,544
43,300 FiServ, Inc. * 1,994,506
63,700 Sungard Data Systems * 2,006,550
------------
6,321,600
------------
New Consumer - 4.02%
47,100 CKE Restaurants, Inc. 1,401,225
99,500 Flower Industries, Inc. 2,170,344
74,700 TJX Companies, Inc. 1,330,594
------------
4,902,163
------------
New Health Care Paradigm - 9.22%
57,000 Henry Schein, Inc. * 1,980,750
52,500 HBO & Co. 1,515,938
36,000 McKesson Corporation 3,298,500
42,500 Quintiles Transnational * 1,859,375
43,900 Safeskin Corporation * 1,385,594
50,600 Total Renal Care Holding * 1,214,400
------------
11,254,557
------------
Our Strengthening Financial Structure - 9.81%
99,300 Ace Ltd. 2,979,000
18,800 Capital One Financial, Inc. 1,945,800
33,600 FINOVA Group, Inc. 1,677,900
31,700 Fremont General Corporation 1,521,600
24,100 Life Re Corporation 2,215,694
43,900 Newcourt Credit Group, Inc. * 1,146,887
55,400 Ocwen Financial Corporation * 484,750
------------
11,971,631
------------
Return to Home Ownership - 1.78%
79,100 Linens 'N Things, Inc. * 2,175,250
------------
Stores of Value - 3.41%
97,100 Family Dollar Stores, Inc. 1,529,325
56,200 Rite Aid Corporation 1,995,100
15,400 U.S. Foodservice 641,025
------------
4,165,450
------------
Telecommunications - 9.59%
51,500 Frontier Corporation 1,409,812
71,300 General Cable Corporation 1,319,050
120,400 Global Crossing Ltd. * 2,513,350
52,200 Qwest Communications International, Inc. * 1,634,512
68,500 RSL Communications, Inc. - Class A * 1,858,063
26,600 Uniphase Corporation * 1,090,600
79,300 Winstar Communications, Inc. * 1,883,375
------------
11,708,762
------------
Ubiquitous Semiconductor - 3.26%
43,500 Micron Technology, Inc. 1,324,031
27,000 Rambus, Inc. * 1,728,000
34,400 SCI Systems, Inc. * 926,650
------------
3,978,681
------------
Total Common Stocks (Cost $95,303,211) 111,720,603
------------
See Notes to Financial Statements on Pages 10 and 11
6
<PAGE>
Equity Appreciation Fund
Schedule of Portfolio Investments September 30, 1998
Shares Description Value
- ------ ----------- -----
CONVERTIBLE PREFERRED STOCKS - 2.41%
Energizing the Globe
33,100 AES Trust I - Series A, 5.375%, 3/31/27 $ 1,882,562
29,700 United Rentals Cv. Pfd. 1,061,775
------------
2,944,337
------------
Total Convertible Preferred Stocks (Cost $3,189,474) 2,944,337
------------
Shares Description Value
- ------ ----------- -----
SHORT TERM INSTRUMENT - 11.07%
Mutual Fund
13,510,916 BT Institutional Cash Management Fund
(Cost $13,510,916) $ 13,510,916
------------
Total Investments (Cost $112,003,601) 105.00% $128,175,856
Liabilities in Excess of Other Assets (5.00)% (6,098,750)
------ ------------
Net Assets 100.00% $122,077,106
====== ============
- --------------
* Non-Income Producing Security
The following abbreviation is used in portfolio descriptions:
ADR -- American Depository Receipt
See Notes to Financial Statements on Pages 10 and 11
7
<PAGE>
Equity Appreciation Fund
Statement of Assets and Liabilities September 30, 1998
<TABLE>
<S><C>
Assets
Investments, at Value (Cost of $112,003,601) $128,175,856
Receivable for Securities Sold 1,171,606
Receivable for Shares of Beneficial Interest Subscribed 43,183
Dividends and Interest Receivable 101,763
Prepaid Expenses and Other 8,892
------------
Total Assets 129,501,300
------------
Liabilities
Payable for Securities Purchased 1,294,090
Payable for Shares of Beneficial Interest Redeemed 6,001,372
Due to Bankers Trust 97,419
Accrued Expenses and Other 31,313
------------
Total Liabilities 7,424,194
------------
Net Assets $122,077,106
============
Composition of Net Assets
Paid-in Capital 105,506,732
Accumulated Net Realized Gain from Investment Transactions 398,119
Net Unrealized Appreciation on Investments 16,172,255
------------
Net Assets $122,077,106
============
Net Asset Value, Offering and Redemption Price Per Share (net assets divided by shares outstanding) $ 13.98
============
Shares Outstanding ($0.001 par value per share, unlimited number of shares of
beneficial interest authorized) $8,735,172
============
</TABLE>
Statement of Operations For the year ended September 30, 1998
<TABLE>
<S><C>
Investment Income
Dividends (net of foreign withholding tax of $659) $ 1,039,505
------------
Expenses
Advisory Fees 1,059,224
Administration and Services Fees 814,788
Professional Fees 31,959
Registration Fees 19,328
Shareholder Reports 10,485
Trustees Fees 6,962
Miscellaneous 8,993
------------
Total Expenses 1,951,739
Less Expenses Absorbed by Bankers Trust (322,822)
------------
Net Expenses 1,628,917
------------
Expenses in Excess of Investment Income (589,412)
------------
Realized and Unrealized Gain (Loss) on Investments
Net Realized Gain from Investment Transactions 9,600,928
Net Change in Unrealized Appreciation/Depreciation on Investments (23,654,809)
------------
Net Realized and Unrealized Loss on Investments (14,053,881)
------------
Net Decrease in Net Assets from Operations $(14,643,293)
============
</TABLE>
See Notes to Financial Statements on Pages 10 and 11
8
<PAGE>
Equity Appreciation Fund
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the For the
year ended year ended
September 30, 1998 September 30, 1997
------------------ ------------------
<S><C>
Increase (Decrease) in Net Assets from:
Operations
Expenses in Excess of Investment Income $ (589,412) $ (588,568)
Net Realized Gain from Investment Transactions 9,600,928 5,456,749
Net Change in Unrealized Appreciation/Depreciation on Investments (23,654,809) 15,660,007
------------- -------------
Net Increase (Decrease) in Net Assets from Operations (14,643,293) 20,528,188
------------- -------------
Distributions to Shareholders
Net Realized Gain from Investment Transactions (10,600,974) (8,100,387)
------------- -------------
Capital Transactions in Shares of Beneficial Interest
Proceeds from Sales of Shares 129,443,699 51,997,331
Dividend Reinvestments 10,600,487 8,100,387
Cost of Shares Redeemed (162,731,127) (62,504,915)
Other Capital Transactions -- 2,419,383
------------- -------------
Net Increase (Decrease) from Capital Transactions in Shares of Beneficial Interest (22,686,941) 12,186
------------- -------------
Total Increase/(Decrease) in Net Assets (47,931,208) 12,439,987
Net Assets
Beginning of Year 170,008,314 157,568,327
------------- -------------
End of Year $ 122,077,106 $ 170,008,314
============= =============
</TABLE>
Financial Highlights
Contained below are selected data for a share outstanding, total investment
return, ratios to average net assets and other supplemental data for the periods
indicated for the BT Investment Equity Appreciation Fund.
<TABLE>
<CAPTION>
For the years ended September 30, For period For the
--------------------------------- Jan. 1, 1995 to year ended
1998 1997 1996 Sept. 30, 1995+ Dec. 31, 1994
-------- -------- -------- ----------------- -------------
<S><C>
Per Share Operating Performance:
Net Asset Value, Beginning of Period $16.70 $15.23 $14.14 $10.14 $ 9.80
------ ------ ------ ------ ------
Income fromInvestment Operations
Expenses in Excess of Investment Income (0.07) (0.06) (0.05) (0.02) (0.03)
Net Realized and Unrealized Gain (Loss) on
Investment Transactions (1.68) 2.31 1.72 4.02 0.37
------ ------ ------ ------ ------
Total Income (Loss) from Investment Operations (1.75) 2.25 1.67 4.00 0.34
------ ------ ------ ------ ------
Distributions to Shareholders
Net Realized Gain from Investment Transactions (0.97) (0.78) (0.58) -- --
------ ------ ------ ------ ------
Net Asset Value, End of Period $13.98 $16.70 $15.23 $14.14 $10.14
====== ====== ====== ====== ======
Total Investment Return (10.68)% 15.82% 12.45% 39.45% 3.47%
Supplemental Data and Ratios:
Net Assets, End of Period (000s omitted) $122,077 $170,008 $157,568 $92,033 $29,973
Ratios to Average Net Assets:
Expenses in Excess of Investment Income (0.36)% (0.39)% (0.42)% (0.38)%* (0.32)%
Expenses 1.00% 1.00% 1.00% 1.00%* 1.00%
Decrease Reflected in Above Expense
Ratio Due to Absorption of Expenses by
Bankers Trust 0.20% 0.20% 0.24% 0.33%* 0.46%
Portfolio Turnover Rate 159% 188% 271%++ 125%++ 157%++
</TABLE>
- --------------
* Annualized
+ Board of Trustees approved the change of the BT Investment Equity
Appreciation Fund's year end from December 31 to September 30.
++ Amounts were previously included in the Capital Appreciation Portfolio
Financial Highlights.
See Notes to Financial Statements on Pages 10 and 11
9
<PAGE>
Equity Appreciation Fund
Notes to Financial Statements
Note 1--Organization and Significant Accounting Policies
A. Organization
BT Pyramid Mutual Funds (the "Trust") is registered under the Investment Company
Act of 1940 (the "Act"), as amended, as an open-end management investment
company. The Trust was organized on February 28, 1992, as a business trust under
the laws of the Commonwealth of Massachusetts. The BT Investment Equity
Appreciation Fund (the "Fund") is one of the funds offered to investors by the
Trust. The Fund commenced operations and began offering shares of beneficial
interest on October 12, 1993.
B. Security Valuation
The Fund's investments listed or traded on National Stock Exchanges or other
domestic or foreign exchanges are valued based on the closing price of a
security traded on that exchange prior to the time when the Fund assets are
valued. Short-term debt securities are valued at market value until such time as
they reach a remaining maturity of 60 days, whereupon they are valued at
amortized cost using their value on the 61st day. All other securities and other
assets are valued at their fair value as determined in good faith under
procedures established by and under the general supervision of the Trustees.
C. Security Transactions and Interest Income
Security transactions are accounted for on a trade date basis. Dividend income
is recorded on the ex-dividend date. Interest income is recorded on the accrual
basis and includes amortization of premium and discount on investments. Expenses
are recorded when incurred. Realized gains and losses from securities
transactions are recorded on the identified cost basis.
D. Repurchase Agreements
The Fund may enter into repurchase agreements with financial institutions deemed
to be creditworthy by the Fund's investment advisor, subject to the seller's
agreement to repurchase such securities at a mutually agreed upon price.
Securities purchased subject to repurchase agreements are deposited with the
Fund's custodian and pursuant to the terms of the repurchase agreement must have
an aggregate market value greater than or equal to the repurchase price plus
accrued interest at all times. If the value of the underlying securities falls
below the value of the repurchase price plus accrued interest, the Fund will
require the seller to deposit additional collateral by the next business day. If
the request for additional collateral is not met, or the seller defaults on its
repurchase obligation, the Fund maintains the right to sell the underlying
securities at market value and may claim any resulting loss against the seller.
However, in the event of default or bankruptcy by the seller, realization and/or
retention of the collateral may be subject to legal proceedings.
E. Distributions
It is the Fund's policy to declare and distribute dividends quarterly to
shareholders from net investment income, if any. Dividends and distributions
payable to shareholders are recorded by the Fund on the ex-dividend date.
Distributions of net realized short-term and long-term capital gains, if any,
earned by the Fund will be made annually to the extent they are not offset by
any capital loss carryforwards.
F. Federal Income Taxes
It is the Fund's policy to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute
substantially all of its taxable income to shareholders. Therefore, no federal
income tax provision is required.
The Fund may periodically make reclassifications among certain of its capital
accounts as a result of differences in the characterization and allocation of
certain income and capital gains distributions determined annually in accordance
with federal tax regulations which may differ from generally accepted accounting
principles.
G. Other
The Trust accounts separately for the assets, liabilities, and operations of the
Fund. Expenses directly attributable to the Fund are charged to that Fund, while
expenses which are attributable to all of the Trust's funds are allocated among
them.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts in the financial statements. Actual results could
differ from those estimates.
Note 2--Fees and Transactions with Affiliates
The Fund has entered into an Administration and Services Agreement with Bankers
Trust Company ("Bankers Trust"). Under this Administration and Services
Agreement, Bankers Trust provides administrative, custody, transfer agency and
shareholder services to the Fund in return for a fee computed daily and paid
monthly at an annual rate of .50% of the Fund's average daily net assets.
The Fund has entered into an Advisory Agreement in which the Fund pays Bankers
Trust an advisory fee computed daily and paid monthly at an annual rate .65% of
the Fund's average daily net assets.
Bankers Trust has voluntarily undertaken to waive and reimburse expenses of the
Fund, to the extent necessary, to limit all expenses to 1% of the average daily
net assets of the Fund.
The BT Investment Equity Appreciation Fund (the "Equity Fund") may invest in the
BT Institutional Cash Management Fund (the "Fund"), an open-end management
investment company managed by Bankers Trust Company (the "Company"). The Fund is
offered as a cash management option to the Equity Fund and other accounts
managed by the Company. Distributions from the Fund to the Equity Fund as of
September 30, 1998, amounted to $548,291 and are included in dividend income.
The Trust has entered into a distribution agreement with ICCDistributors, Inc.
("ICC") under which ICC will serve as distributor for shares sold on behalf of
the Fund.
The BT Investment Equity Appreciation Fund is a participant with other
affiliated entities in a revolving credit facility (the "revolver") and a
discretionary demand line of credit facility, collectively (the "credit
10
<PAGE>
Equity Appreciation Fund
Notes to Financial Statements
facilities") in the amounts of $50,000,000 and $100,000,000, respectively. A
commitment fee of .07% per annum on the average daily amount of the available
commitment is payable on a quarterly basis and apportioned equally among all
participants. Amounts borrowed under the credit facilities will bear interest at
a rate per annum equal to the Federal Funds Rate plus .45%. No amounts were
drawn down or outstanding under the credit facilities as of and for the year
ended September 30, 1998.
Note 3--Shares of Beneficial Interest
At September 30, 1998, there were an unlimited number of shares of beneficial
interest authorized. Transactions in shares of beneficial interest were as
follows:
<TABLE>
<CAPTION>
For the For the
year ended year ended
September 30, 1998 September 30, 1997
-------------------------- --------------------------
Shares Amount Shares Amount
------------ ------------- ----------- ------------
<S><C>
Sold 8,206,412 $129,443,699 3,685,748 $ 51,997,331
Reinvested 734,106 10,600,487 582,292 8,100,387
Redeemed (10,385,246) (162,731,127) (4,432,111) (62,504,915)
Other Capital
Transaction -- -- -- 2,419,383
----------- ------------ ---------- ------------
Net Increase (Decrease) (1,444,728) $(22,686,941) (164,071) $ 12,186
=========== ============ ========== ============
</TABLE>
Note 4--Purchases and Sales of Investment Securities
The aggregate cost of purchases and proceeds from sales of investments, other
than short-term obligations, for the year ended September 30, 1998 were
$240,334,164 and $273,909,352, respectively. For federal income tax purposes,
the tax basis of investments held at September 30, 1998 was $112,084,404. The
aggregate gross unrealized appreciation for all investments was $21,508,182 and
the aggregate gross unrealized depreciation for all investments was $5,416,730.
11
<PAGE>
Equity Appreciation Fund
Report of Independent Accountants
To the Trustees of BT Pyramid Mutual Funds and the Shareholders
of BT Investment Equity Appreciation Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of The BTInvestment Equity
Appreciation Fund (one of the Funds comprising Pyramid Mutual Funds, hereafter
referred to as the "Fund") at September 30, 1998, and the results of its
operations, the changes in its net assets and the financial highlights for each
of the fiscal periods presented, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at September 30, 1998 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Baltimore, Maryland
November 6, 1998
Tax Information (Unaudited) For the Year Ended September 30, 1998
The Fund paid long term capital gains during the year ending 9/30/98 in the
amount of $7,484,526. 25.64% of the long term capital gain distributions are
taxed at the 20% capital gains rate. In addition, of the ordinary distributions
made during the year ending 9/30/98, $0.06 per share qualify for the dividends
received deduction available to corporate shareholders.
12
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<PAGE>
BT PYRAMID FUNDS
BT INVESTMENT EQUITY APPRECIATION FUND
Investment Advisor and Administrator of the Portfolio
BANKERS TRUST COMPANY
130 Liberty Street
New York, NY 10006
Distributor
ICC DISTRIBUTORS, INC.
P.O. Box 7558
Portland, ME 04112-9892
Custodian and Transfer Agent
BANKERS TRUST COMPANY
130 Liberty Street
New York, NY 10006
Independent Accountants
PRICEWATERHOUSECOOPERS LLP
250 West Pratt Street
Baltimore, MD 21201
Counsel
WILLKIE FARR & GALLAGHER
787 7th Avenue
New York, NY 10019
-------------------
For information on how to invest, shareholder account information
and current price and yield information, please contact your
relationship manager or the BT Mutual Fund Service Center at (800)
730-1313. This must be preceded or accompanied by a current
prospectus for the Fund.
-------------------
BT Pyramid Investment Equity Appreciation CUSIP #055922751
STA477200 (9/98)