BT PYRAMID MUTUAL FUNDS, 485BPOS, 1998-01-28

BT PYRAMID MUTUAL FUNDS
485BPOS, 1998-01-28

Previous: IBAH INC, SC 13G/A, 1998-01-28

Next: FIRST FUNDS, 497J, 1998-01-28

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. _19_ ...................... X

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X

Amendment No. 20 ..................................... X

BT PYRAMID MUTUAL FUNDS
(Exact Name of Registrant as Specified in Charter)

Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779
(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 One Citicorp Center
(Name and Address of Agent for Service) 153 East 53rd Street
New York, New York 10022

It is proposed that this filing will become effective
(check appropriate box)

[X] immediately upon filing pursuant to paragraph (b) [ ] on pursuant to
paragraph (b) [ ] 60 days after filing pursuant to paragraph (a)(1) [ ] on
(date) 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.

Short/Intermediate U.S. Government Securities Portfolio and BT Investment
Portfolios have also executed this Registration Statement.

<PAGE>

CROSS-REFERENCE SHEET

This Amendment to the Registration Statement of BT PYRAMID MUTUAL FUNDS,
which is comprised of six Funds, relates only to the BT Investment Limited Term
U.S. Government Securities Fund, the BT Investment Equity Appreciation Fund and
the BT Preservation Plus Fund, which are comprised of the following:

PART A. INFORMATION REQUIRED IN A PROSPECTUS.
<TABLE>
<CAPTION>

Prospectus Heading
(Rule 404(c) Cross Reference)
<S> <C> <C>

Item 1. Cover Page....................Cover Page.
Item 2. Synopsis......................Summary of Fund Expenses.
Item 3. Condensed Financial
Information..................Performance Information and Reports.
Item 4. General Description of
Registrant...................The Fund; Who May Invest; Investment Objective and Policies; Special
Information Concerning the
Master-Feeder Fund Structure; Risk Factors: Matching the Fund to Your Investment Needs.
Item 5. Management of the Fund........Management of the Trust and the Portfolio;
Item 6. Capital Stock and Other
Securities...................Net Asset Value; Dividends, Distributions and Taxes.
Item 7. Purchase of Securities Being
Offered Purchase and Redemption of Shares
Item 8. Redemption or Repurchase Purchase and Redemption of Shares
Item 9. Legal Proceedings None.

<PAGE>

PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION.

Item 10. Cover Page....................Cover Page.
Item 11. Table of Contents.............Table of Contents.
Item 12. General Information and
History Organization of the Trust.
Item 13. Investment Objectives and
Policies Investment Objective, and Policies
Item 14. Management of the Fund........Management of the Trust and Portfolio.
Item 15. Control Persons and Principal
Holders of Securities Trustee Compensation Table.
Item 16. Investment Advisory and Other
Services Investment Adviser; Administrator.
Item 17. Brokerage Allocation..........Portfolio Transactions and Brokerage Commissions.
Item 18. Capital Stock and Other
Securities Not Applicable.
Item 19. Purchase, Redemption and
Pricing of Securities Being
Offered......................Valuation of Securities; Redemptions and Purchases in Kind.
Item 20. Tax Status....................Taxation.
Item 21. Underwriters Not applicable.
Item 22. Calculation of Performance
Data Performance Information.
Item 23. Financial Statements..........Incorporated herein by reference to the Annual Report to shareholders of the
Fund dated September, 1997 pursuant to Rule 411 under the Securities Act of 1933
(File Nos. 33-45973 and 811-6576).

</TABLE>

(BULLET) BT PYRAMID MUTUAL FUNDS (BULLET)

- --------------------------------------------------------------------------------

BT INVESTMENT
LIMITED TERM U.S. GOVERNMENT
SECURITIES FUND

Seeks high current income, through investment in short and intermediate term
U.S. government securities, to the extent consistent with the preservation of
capital.

PROSPECTUS
- --------------------------------------------------------------------------------
JANUARY 31, 1998

BT Pyramid Mutual Funds (the "Trust") is an open-end, management investment
company (mutual fund) which consists of a number of separate investment funds.

Please read this Prospectus carefully before investing and retain it for future
reference. It contains important information about the BT Investment Limited
U.S. Government Securities Fund (the "Fund") that you should know and can refer
to in deciding whether the Fund's goals match your own.

A Statement of Additional Information ("SAI") with the same date has been filed
with the Securities and Exchange Commission ("SEC"), and is incorporated herein
by reference. You may request a free copy of the SAI by calling the Fund's
Service Agent at 1-800-730-1313. This Statement of Additional Information,
material incorporated by reference into this document, and other information
regarding the Fund is maintained electronically with the SEC at Internet Web
site (http://www.sec.gov).

Unlike other mutual funds, the Fund seeks to achieve its investment objective by
investing all of its investable assets ("Assets") in the Short/Intermediate U.S.
Government Securities Portfolio (the "Portfolio"), a separate investment company
with an identical investment objective. The investment performance of the Fund
will correspond directly to the investment performance of the Portfolio. See
"Special Information Concerning Master-Feeder Fund Structure" herein.

BANKERS TRUST COMPANY ("BANKERS TRUST") IS THE INVESTMENT ADVISER (THE
"ADVISER") OF THE PORTFOLIO. SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS
OF, OR GUARANTEED OR ENDORSED BY, BANKERS TRUST OR ANY OTHER BANKING OR
DEPOSITORY INSTITUTION. SHARES ARE NOT FEDERALLY GUARANTEED OR INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION ("FDIC"), THE U.S. GOVERNMENT, THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY AND ARE SUBJECT TO INVESTMENT RISK, INCLUDING
THE POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.

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.

EDGEWOOD SERVICES, INC.
Clearing Operations (Bullet) P.O. Box 897 (Bullet) Pittsburgh, Pennsylvania
(Bullet) 15230-0897

<PAGE>

- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------

PAGE
- --------------------------------------------------------------------------------

The Fund.......................................................................3

Who May Want to Invest.........................................................3

Summary of Fund Expenses.......................................................4

Financial Highlights...........................................................5

Investment Objective and Policies..............................................6

Risk Factors: Matching the Fund to Your Investment Needs.......................8

Net Asset Value...............................................................10

Purchase and Redemption of Shares.............................................11

Dividends, Distributions and Taxes............................................15

Performance and Information Reports...........................................15

Management of the Trust and Portfolio.........................................16
- --------------------------------------------------------------------------------

<PAGE>

- --------------------------------------------------------------------------------
THE FUND
- --------------------------------------------------------------------------------

The Fund's investment objective is a high level of current income consistent
with preservation of capital. The Trust seeks to achieve the investment
objective of the Fund by investing all of the Assets of the Fund in the
Short/Intermediate U.S. Government Securities Portfolio, which has the same
investment objective as the Fund. The Portfolio invests 100% of its assets in
U.S. Government Securities (as defined herein) including repurchase agreements
secured by U.S. Government Securities.

- --------------------------------------------------------------------------------
WHO MAY WANT TO INVEST
- --------------------------------------------------------------------------------

The Fund is designed for conservative investors looking for a relatively stable,
high quality investment.

The Fund offers investors a convenient means of participating in a managed,
diversified pool of short-term and intermediate-term U.S. Government Securities
while relieving those investors of the administrative burdens typically
associated with purchasing and holding these instruments, such as coordinating
maturities and reinvestments, providing for safekeeping and maintaining detailed
records. The Fund's yield normally is expected to be higher than a money market
fund but lower than a longer-term or lower quality bond fund.

<PAGE>

- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------

The following table provides (i) a summary of expenses relating to purchases and
sales of the shares of the Fund and the annual operating expenses of the Fund
and the expenses of the Portfolio, as a percentage of average net assets of the
Fund and (ii) an example illustrating the dollar cost of such expenses on a
$1,000 investment in the Fund. THE TRUSTEES OF THE TRUST BELIEVE THAT THE
AGGREGATE PER SHARE EXPENSES OF THE FUND AND THE PORTFOLIO WILL BE LESS THAN OR
APPROXIMATELY EQUAL TO THE EXPENSES WHICH THAT FUND WOULD INCUR IF THE TRUST
RETAINED THE SERVICES OF AN INVESTMENT ADVISER AND THE ASSETS OF THAT FUND WERE
INVESTED DIRECTLY IN THE TYPE OF SECURITIES BEING HELD BY THE CORRESPONDING
PORTFOLIO.

- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSES
(as a percentage of the average daily net assets of the Fund)
<S> <C>
.........................................................................................................................
Investment advisory fee 0.19%
12b-1 fees None
Other expenses (after reimbursements or waivers) 0.41%
.........................................................................................................................
Total operating expenses (after reimbursements or waivers) 0.60%
.........................................................................................................................
EXAMPLE 1 year 3 Years 5 years 10 years
.........................................................................................................................
An investor would pay the following expenses on a $1,000 investment,
assuming: (1) 5% annual return and (2) redemption at the end of each
time period $6 $19 $33 $75
- --------------------------------------------------------------------------------
</TABLE>

The expense table and the example above show the costs and expenses that an
investor will bear directly or indirectly as a shareholder of the Fund. Bankers
Trust has voluntarily agreed to waive a portion of its investment advisory fee.
The expense table and the example reflect a voluntary undertaking by Bankers
Trust to waive or reimburse expenses such that the total operating expenses will
not exceed 0.60% of the Fund's average net assets annually. In the absence of
this undertaking, for the fiscal year ended September 30, 1997, the Total
Operating Expenses would have been 0.75% of the Fund's average net assets
annually. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
Moreover, while each example assumes a 5% annual return, actual performance will
vary and may result in a return greater or less than 5%.

The Fund is distributed by Edgewood Services, Inc. ("Edgewood," or the
"Distributor") to investors including customers of Bankers Trust or to customers
of another bank, or a dealer or other financial intermediary that has a
sub-shareholder servicing agreement with Bankers Trust (along with Bankers
Trust, a "Service Agent"). Some Service Agents may impose certain conditions on
their customers in addition to or different from those imposed by the Fund and
may charge their customers a direct fee for their services, including
transaction fees on purchases and redemptions of Fund shares. Each Service Agent
has agreed to transmit to shareholders who are its customers appropriate
disclosures of any fees that it may charge them directly.

For more information with respect to the expenses of the Fund and the Portfolio
see "Management of the Trust and Portfolio" herein.

<PAGE>

- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

The following table shows the selected data for a share outstanding, total
investment return, ratios to average net assets and other supplemental data for
the Fund for each period indicated and has been audited by Coopers & Lybrand
L.L.P., the Fund's independent accountants, whose report thereon appears in the
Fund's Annual Report which is incorporated by reference.

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FOR THE PERIOD FOR THE YEARS ENDED
YEAR ENDED JANUARY 1, 1996 TO DECEMBER 31,
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996* 1995 1994 1993
<S> <C>
- -----------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, Beginning of Period............ $9.80 $9.96 $9.61 $10.06 $9.93
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income......................... 0.53 0.38 0.57 0.44 0.41
Net Realized and Unrealized Gain (Loss) from
Investment Transactions.................... 0.06 (0.14) 0.35 (0.45) 0.20
Total Income (Loss) from Investment Operations.. 0.59 0.24 0.92 (0.01) 0.61
DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income......................... (0.53) (0.38) (0.57) (0.44) (0.41)
Net Realized Gain from Investment
Transactions.................................. -- (0.02) -- -- (0.07)
Total Distributions............................. (0.53) (0.40) (0.57) (0.44) (0.48)
NET ASSET VALUE, END OF PERIOD.................. $9.86 $9.80 $9.96 $9.61 $10.06
TOTAL INVESTMENT RETURN......................... 6.22% 2.50% 9.81% (0.08)% 6.21%
SUPPLEMENTAL DATA AND RATIOS:
Net Assets, End of Period (000s omitted)...... $57,106 $51,737 $29,870 $31,302 $3,462
Ratios to Average Net Assets:
Net Investment Income...................... 5.44% 5.22%** 5.81% 4.69% 4.35%
Expenses, Including Expenses of the
Short/Intermediate U.S. Government
Securities Portfolio..................... 0.60% 0.60%** 0.60% 0.60% 0.60%
Decrease Reflected in Above Expense Ratio
Due to Absorption of Expenses by Bankers
Trust.................................... 0.15% 0.40%** 0.24% 0.34% 1.43%
</TABLE>
- --------------------------------------------------------------------------------
* On February 9, 1996, the Board of Trustees approved the change of the Fund's
fiscal year end from December 31 to September 30.
** Annualized.

Further information about the Fund's performance is contained in the Fund's
Annual Report, dated September 30, 1997, which can be obtained free of charge.

<PAGE>

- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------

The Fund's investment objective is a high level of current income consistent
with preservation of capital. The Fund offers investors a convenient means of
participating in a managed, diversified pool of short-term and intermediate-term
U.S. Government Securities while relieving those investors of the administrative
burdens typically associated with purchasing and holding these instruments, such
as coordinating maturities and reinvestments, providing for safekeeping and
maintaining detailed records. The Fund's yield normally is expected to be higher
than a money market fund but lower than a longer-term or lower quality bond
fund.

The Trust seeks to achieve the investment objective of the Fund by investing all
the Assets of the Fund in the Portfolio, which has the same investment objective
as the Fund. There can be no assurances that the investment objective of either
the Fund or the Portfolio will be achieved. The investment objective of the Fund
and the Portfolio is not a fundamental policy and may be changed upon notice to
but without the approval of the Fund's shareholders or the Portfolio's
investors, respectively. See "Special Information Concerning Master-Feeder Fund
Structure" herein.

SHORT/INTERMEDIATE U.S. GOVERNMENT SECURITIES PORTFOLIO

U.S. GOVERNMENT SECURITIES. The Portfolio seeks to achieve its objective by
investing 100% of its assets in U.S. Government Securities, including repurchase
agreements secured by U.S. Government Securities.

In selecting securities for the Portfolio, Bankers Trust attempts to maintain
the Portfolio's overall sensitivity to interest rates in a range similar to that
of short-term to intermediate-term government bonds and notes with weighted
average maturities of two to five years. Because the Portfolio may invest in
mortgage securities whose prices are less sensitive to interest rates than their
relatively long maturities would suggest, the Portfolio's dollar-weighted
average maturity may be longer than five years from time to time, but will not
exceed seven years under normal conditions. The Portfolio may hold individual
securities with remaining maturities of more than seven years as long as the
Portfolio's dollar-weighted average maturity remains within the above limit. The
remaining maturities of individual securities, excluding mortgage securities,
will normally not exceed ten years.

"U.S. Government Securities" as used herein means securities issued or
guaranteed by the U.S. government or its agencies or instrumentalities. U.S.
Government Securities have varying degrees of government backing. They may be
backed by the credit of the government as a whole or only by the issuing agency.
Securities issued by certain agencies are supported only by the credit of the
agency that issued them, and not by the U.S. government. Securities issued by
the Federal Home Loan Mortgage Corporation and the Federal National Mortgage
Association are supported by the agency's right to borrow money from the U.S.
Treasury under certain circumstances. There is no assurance that the U.S.
government will support the obligations of its agencies or instrumentalities if
it is not required to do so by law. U.S. Treasury bonds, notes and bills, and
some agency securities, such as those issued by the Government National Mortgage
Association, are backed by the full faith and credit of the U.S. government as
to payment of principal and interest and are the highest quality government
securities. The Fund itself, and its share price and yield, are not guaranteed
by the U.S. government. For additional information on U.S. Government
Securities, see below.

The Portfolio may invest a portion of its assets in short-term U.S. Government
Securities with remaining maturities of one year or less and repurchase
agreements relating thereto. When Bankers Trust believes market conditions
warrant a temporary defensive position, the Portfolio may invest up to 100% of
its assets in these instruments.

REPURCHASE AGREEMENTS. In a repurchase agreement the Portfolio buys a security
and simultaneously agrees to sell it back at a higher price. The Portfolio will
only enter repurchase agreements with respect to obligations backed by the full
faith and credit of the U.S. government. The Portfolio shall always receive U.S.
Government Securities as collateral with a market value equal to 102% of the
purchase price plus accrued interest. In the event of the bankruptcy of the
other party to a repurchase agreement, the Portfolio could experience delays in
recovering its cash. 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 Portfolio 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.

<PAGE>

- --------------------------------------------------------------------------------

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Portfolio may purchase
securities on a when-issued or delayed delivery basis. Delivery of and payment
for these securities may take place as long as a month or more after the date of
the purchase commitment. The value of these securities is subject to market
fluctuation during this period and no income accrues to the Portfolio until
settlement takes place. The Portfolio maintains with the Custodian a segregated
account containing high grade liquid securities in an amount at least equal to
these commitments. When entering into a when-issued or delayed delivery
transaction, the Portfolio will rely on the other party to consummate the
transaction; if the other party fails to do so, the Portfolio may be
disadvantaged.

SECURITIES LENDING. The Portfolio is permitted to lend up to 30% of its net
assets (taken at market value). These loans must be secured continuously by cash
or equivalent collateral or by a letter of credit at least equal to the market
value of the securities loaned plus accrued income. By lending its securities,
the Portfolio can increase its income by continuing to receive income on the
loaned securities as well as by the opportunity to receive interest on the
collateral. Any gain or loss in the market price of the borrowed securities
which occurs during the term of the loan inures to the Portfolio and its
investors. In lending securities to brokers, dealers and other organizations,
the Portfolio is subject to risks which, like those associated with other
extensions of credit, include delays in recovery and possible loss of rights in
the collateral should the borrower fail financially.

MORTGAGE-BACKED SECURITIES. The Portfolio may purchase mortgage-backed
securities issued by the U.S. government and its agencies and instrumentalities.
Mortgage-backed securities include mortgage pass-through securities,
mortgage-backed bonds and mortgage pay-through securities. A mortgage
pass-through security is a pro rata interest in a pool of mortgages where the
cash flow generated from the mortgage collateral is passed through to the
security holder. Mortgage-backed bonds are general obligations of their issuers,
payable out of the issuers' general funds and additionally secured by a first
lien on a pool of mortgages. Mortgage pay-through securities exhibit
characteristics of both pass-throughs and mortgage-backed bonds. Mortgage-backed
securities also include other debt obligations secured by mortgages on
commercial real estate or residential properties. Other types of mortgage-backed
securities will likely be developed in the future, and the Portfolio may invest
in them if Bankers Trust determines they are consistent with the Portfolio's
investment objective and policies.

COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"). The Portfolio may purchase CMOs
issued by the U.S. government and its agencies and instrumentalities. CMOs are
pay-through securities collateralized by mortgages or mortgage-backed
securities. CMOs are issued in classes and series that have different maturities
and often are retired in sequence.

ZERO COUPON BONDS. These bonds can be issued directly by federal agencies and
instrumentalities. Such issues of zero coupon bonds are originated in the form
of a zero coupon bond and are not created by stripping an outstanding bond.

Zero coupon bonds do not make regular interest payments. Instead they are sold
at a deep discount from their face value. Because a zero coupon bond does not
pay current income, its price can be very volatile when interest rates change.
In calculating its daily dividend, the Fund takes into account as income a
portion of the difference between a zero coupon bond's purchase price and its
face value.

OPTIONS AND FUTURES CONTRACTS. While the Portfolio has the ability to engage in
options and futures contracts, it has no present intention to do so.

ASSET COVERAGE. To assure that the Portfolio's use of futures and related
options, as well as when-issued and delayed delivery securities, are not used to
achieve investment leverage, the Portfolio will cover such transactions, as
required under applicable interpretations of the SEC, either by owning the
underlying securities or by establishing a segregated account with the
Portfolio's custodian containing high grade liquid debt securities in an amount
at all times equal to or exceeding the Portfolio's commitment with respect to
these instruments or contracts.

INVESTMENT BY BANKS. It is a fundamental policy of the Portfolio to invest only
in those assets (including assets subject to repurchase agreements) which would
be assigned a 20% risk weighting in the calculation of risk-based capital credit
under the regulations of the Federal Reserve Board, the OCC and the FDIC if held
directly by a financial institution subject to any of such regulations. Before
investing in the Portfolio, investors should review these regulations, the types
of investments the

<PAGE>

- --------------------------------------------------------------------------------

Portfolio proposes to make and, where appropriate, consult legal counsel for
additional guidance.

INVESTMENT COMPANY SECURITIES. Securities of other investment companies may be
acquired by the Portfolio to the extent permitted under the 1940 Act, that is,
the Portfolio may invest a maximum of up to 10% of its total assets in
securities of other investment companies so long as not more than 3% of the
total outstanding voting stock of any one investment company is held by the
Portfolio. In addition, not more than 5% of the Portfolio's total assets may be
invested in the securities of any one investment company. The Portfolio may be
permitted to exceed these limitations by an exemptive order of the SEC. It
should be noted that investment companies incur certain expenses such as
management, custodian, and transfer agency fees, and, therefore, any investment
by the Portfolio in shares of other investment companies would be subject to
such duplicate expenses.

ADDITIONAL INVESTMENT LIMITATIONS

As a diversified fund, no more than 5% of the assets of the Portfolio may be
invested in the securities of one issuer (other than U.S. Government
Securities). The Portfolio will not invest more than 25% of its assets in the
securities of issuers in any one industry. These are fundamental investment
policies of the Portfolio which may not be changed without investor approval. No
more than 15% of the Portfolio's net assets may be invested in illiquid or not
readily marketable securities (including repurchase agreements with remaining
maturities of more than seven calendar days). Additional investment policies of
the Portfolio are contained in the SAI.

- --------------------------------------------------------------------------------
RISK FACTORS: MATCHING THE FUND TO YOUR
INVESTMENT NEEDS
- --------------------------------------------------------------------------------

The Fund is designed for conservative investors looking for a relatively stable,
high quality investment. Because the Portfolio invests in high quality
instruments with short to intermediate maturities, its share price should be
more stable than that of a long-term bond fund, although it may be less stable
than that of a short-term bond fund. Generally, short to intermediate-term
instruments are less sensitive to interest rate fluctuations or changes in an
issuer's credit standing than longer-term bonds. At the same time, the Fund may
not offer the same yield or growth potential as a long-term bond fund. The Fund
should provide higher yields than mutual funds that maintain shorter average
maturities, but will not provide the same stability of principal. Bond funds
generally offer greater price stability than stock funds, although the potential
rewards of bonds are not as great. By itself, the Fund does not constitute a
balanced investment plan; the Fund and the Portfolio stress income and
preservation of capital rather than capital growth. The Fund's share price,
yield and total return fluctuate based on many factors, and the value of Fund
shares when redeemed may be more or less than their original cost.

The value of Fund shares will tend to decrease when interest rates rise, and
increase when interest rates fall. The Fund's share price and yield also depend
on the quality of the Portfolio's investments. While U.S. government securities
generally are of high quality, government securities that are not backed by the
full faith and credit of the United States may be affected by changes in the
creditworthiness of the agency that issued them. Many securities can provide
higher yields than U.S. Government Securities, although they may not provide the
same high quality.

Some types of U.S. Government Securities carry certain risks. For example,
mortgage-backed securities are subject to certain prepayment risks, while zero
coupon bonds may require the Portfolio to accrue income for which it has
received no actual cash. For additional information about these types of U.S.
Government Securities, see above and "Investment Objective and Policies" herein.

PORTFOLIO TURNOVER

Bankers Trust may engage in short-term trading when it believes it is consistent
with the Portfolio's investment objective. Also, a security may be sold and
another of comparable quality simultaneously purchased to take advantage of what
Bankers Trust believes to be a temporary disparity in the normal yield
relationship between the two securities. The frequency of portfolio transactions
- -- the Portfolio's turnover rate -- will vary from

8
<PAGE>

- --------------------------------------------------------------------------------

year to year depending on market conditions. Because a high turnover rate
increases transaction costs and may increase taxable capital gains, Bankers
Trust carefully weighs the anticipated benefits of short-term investment against
these consequences. The Portfolio's turnover rates for the fiscal year ended
September 30, 1997 and for the period from January 1, 1996, to September 30,
1996, were 383% and 314%, respectively. On February 9, 1996 the Board of
Trustees approved the change of fiscal year end from December 31 to September
30.

DERIVATIVES

The Portfolio 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 for cash management purposes as a low cost method of gaining exposure
to a particular securities market without investing directly in those
securities. However, some derivatives are used for leverage, which tends to
magnify the 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 the Adviser
believes they offer the most economic means of improving the risk/reward profile
of the Portfolio. Derivatives will not be used to increase portfolio risk above
the level that could be achieved using only traditional investment securities or
to acquire exposure to changes in the value of assets or indices that by
themselves would not be purchased for the Portfolio. The use of derivatives for
non-hedging purposes may be considered speculative. A description of the
derivatives that the Portfolio may use and some of their associated risks is
found above and in "Investment Objective and Policies" herein.

SPECIAL INFORMATION CONCERNING MASTER-FEEDER FUND STRUCTURE

Unlike other open-end management investment companies (mutual funds) which
directly acquire and manage their own portfolio securities, the Fund seeks to
achieve its investment objective by investing all of its Assets in the
Portfolio, a separate registered investment company with the same investment
objective as the Fund. Therefore, an investor's interest in the Portfolio's
securities is indirect. In addition to selling a beneficial interest to the
Fund, the Portfolio may sell beneficial interests to other mutual funds or
institutional investors. Such investors will invest in the Portfolio on the same
terms and conditions and will pay a proportionate share of the Portfolio's
expenses. However, the other investors investing in the Portfolio are not
required to sell their shares at the same public offering price as the Fund due
to variations in sales commissions and other operating expenses. Therefore,
investors in the Fund should be aware that these differences may result in
differences in returns experienced by investors in the different funds that
invest in the Portfolio. Such differences in returns are also present in other
mutual fund structures. Information concerning other holders of interests in the
Portfolio is available from Bankers Trust at 1-800-730-1313.

The master-feeder structure is relatively complex, so shareholders should
carefully consider this investment approach.

Smaller funds investing in the Portfolio may be materially affected by the
actions of larger funds investing in the Portfolio. For example, if a large fund
withdraws from the Portfolio, the remaining funds may experience higher pro rata
operating expenses, thereby producing lower returns (however, this possibility
exists as well for traditionally structured funds which have large institutional
investors). Additionally, the Portfolio may become less diverse, resulting in
increased portfolio risk. Also, funds with a greater pro rata ownership in the
Portfolio could have effective voting control of the operations of the
Portfolio. Except as permitted by the SEC, whenever the Trust is requested to
vote on matters pertaining to the Portfolio, the Trust will hold a meeting of
shareholders of the Fund and will cast all of its votes in the same proportion
as the votes of the Fund's shareholders. Fund shareholders who do not vote will
not affect the Trust's votes at the Portfolio meeting. The percentage of the
Trust's votes representing Fund shareholders not voting will be voted by the
Trustees or

<PAGE>

- --------------------------------------------------------------------------------

officers of the Trust in the same proportion as the Fund shareholders who do, in
fact, vote.

Certain changes in the Portfolio's investment objectives, policies or
restrictions may require the Fund to withdraw its interest in the Portfolio. Any
such withdrawal could result in a distribution "in kind" of portfolio securities
(as opposed to a cash distribution from the Portfolio). If securities are
distributed, the Fund could incur brokerage, tax or other charges in converting
the securities to cash. In addition, the distribution in kind may result in a
less diversified portfolio of investments or adversely affect the liquidity of
the Fund. Notwithstanding the above, there are other means for meeting
redemption requests, such as borrowing.

The Fund may withdraw its investment from the Portfolio at any time, if the
Board of Trustees of the Trust determines that it is in the best interests of
the shareholders of the Fund to do so. Upon any such withdrawal, the Board of
Trustees of the Trust would consider what action might be taken, including the
investment of all the Assets of the Fund in another pooled investment entity
having the same investment objectives as the Fund or the retaining of an
investment adviser to manage the Fund's assets in accordance with the investment
policies described below with respect to the Portfolio.

The Fund's investment objective is not a fundamental policy and may be changed
upon 30 days prior written notice to but without the approval of the Fund's
shareholders. If there is a change in the Fund's investment objective, the
Fund's shareholders should consider whether the Fund remains an appropriate
investment in light of their then-current needs. The investment objective of the
Portfolio is also not a fundamental policy. Shareholders of the Fund will
receive 30 days prior written notice with respect to any change in the
investment objective of the Fund or the Portfolio. See "Investment Objective and
Policies" herein for a description of the fundamental policies of the Portfolio
that cannot be changed without approval by a "vote of a majority of the
outstanding voting securities" (as defined in the 1940 Act) of the Portfolio.

For descriptions of the investment objective, policies and restrictions of the
Portfolio, see "Investment Objective and Policies." For descriptions of the
management and expenses of the Portfolio, see "Management of the Trust and
Portfolio" herein and in the SAI.

- --------------------------------------------------------------------------------
NET ASSET VALUE
- --------------------------------------------------------------------------------

The net asset value ("NAV") per share of the Fund is calculated on each day on
which the New York Stock Exchange, Inc. (the "NYSE") is open (each such day
being a "Valuation Day"). The NYSE is currently open on each day, Monday through
Friday, except: (a) January 1st, Martin Luther King Day (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 last Thursday in November) and December 25th;
and (b) the preceding Friday or the subsequent Monday when one of the
calendar-determined holidays falls on a Saturday or Sunday, respectively.

The NAV per share of the Fund is calculated on each Valuation Day as of the
close of regular trading on the NYSE, 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 "Valuation Time"). The NAV per share of the Fund is computed by dividing
the value of the Fund's Assets (i.e., the value of its investment in the
Portfolio and other assets), less all liabilities, by the total number of its
shares outstanding. The Portfolio's securities and other assets are valued
primarily on the basis of market quotations or, if quotations are not readily
available, by a method which the Portfolio'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 NAV is 0.005 (1/2 of 1%) or
less or shareholder transactions are otherwise insubstantially affected, further
action is not required.

<PAGE>

- --------------------------------------------------------------------------------
PURCHASE AND REDEMPTION OF SHARES
- --------------------------------------------------------------------------------

HOW TO BUY 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. See "Net
Asset Value" herein. Shares of the Fund may be available through Investment
Professionals, such as broker/dealers and investment advisers (including Service
Agents).

Purchase orders for shares of the Fund (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 Bankers Trust 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

TO ADD TO AN ACCOUNT $ 250
For retirement accounts 100
Through automatic investment plan 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 ALREADY HAVE MONEY INVESTED IN A FUND IN THE BT FAMILY OF FUNDS, you can:

(Bullet) Mail an account application with a check,

(Bullet) Wire money into your account,

(Bullet) Open an account by exchanging from another fund in the BT Family of
Funds, or

(Bullet) Contact your Service Agent or Investment Professional.

If you are investing through a tax-sheltered retirement plan, such as an IRA,
for the first time, you will need a special application. Contact your Investment
Professional or call BT Retirement Services Center at 1-800-677-7596 for more
information and a retirement account application.

11
<PAGE>

- --------------------------------------------------------------------------------

ADDITIONAL INFORMATION ABOUT BUYING SHARES

<TABLE>
<S> <C>
TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT
BY WIRE Call the BT Service Center at 1-800-730-1313 Call
your Investment Professional or wire to receive wire
instructions for account additional investment to:
establishment.

ROUTING NO.: 021001033
ATTN: Bankers Trust/IFTC Deposit
DDA NO.: 00-226-296
FBO: (Account name)
(Account number)
CREDIT:
BT Investment Limited Term
U.S. Government Securities Fund -- 461

Specify
the
complete
name of
the Fund
of your
choice,
and
include
your
account
number
and your
name.

BY PHONE Contact your Service Agent, Investment Contact your Service Agent, Investment
Professional, or call BT's Service Center at Professional, or call BT's Service Center at
1-800-730-1313. If you are an existing 1-800-730-1313. If you are an existing
shareholder, you may exchange from another BT shareholder, you may exchange from another BT
account with the same registration, account with the same registration,
including, name, address, and taxpayer ID including, name, address, and taxpayer ID
number. number.

BY MAIL Complete and sign the account application. Make your check payable to the complete name
Make your check payable to the complete name of the Fund of your choice. Indicate your
of the Fund of your choice. Mail to the Fund account number on your check and mail to
appropriate address indicated on the the address printed on your account
application. statement.
</TABLE>

HOW TO SELL 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 of the Fund 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 Shareholder Servicing 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.

<PAGE>

- --------------------------------------------------------------------------------

account is below the minimum due to a 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.

IF YOU ARE SELLING SOME BUT NOT ALL OF YOUR NON-RETIREMENT ACCOUNT SHARES, leave
at least $1,000 worth of shares in the account to keep it open.

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:

(Bullet) Your account registration has changed within the last 30 days,

(Bullet) The check is being mailed to a different address than the one on your
account (record address),

(Bullet) The check is being made payable to someone other than the account
owner,

(Bullet) The redemption proceeds are being transferred to a BT account with a
different registration, or

(Bullet) You wish to have redemption proceeds wired to a non-predesignated bank
account.

A signature guarantee is also required if you change the pre-designated bank
ninformation 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. The Trust reserves the right to close investor accounts via
30 day notice in writing if the Fund account balance falls below the Fund
minimums.

INVESTOR SERVICES

BT Pyramid Mutual Funds provide a variety of services to help you manage your
account.

INFORMATION SERVICES

STATEMENTS AND REPORTS that your Investment Professional or the Transfer Agent
may send to you include the following:

(Bullet) Confirmation statements (after every transaction that affects your
account balance, including distributions or your account registration)

(Bullet) Account statements (monthly)

(Bullet) Financial reports (every six months)

To reduce expenses, only one copy of most financial reports will be mailed, even
if you have more than one account in the Fund. Call your Investment Professional

<PAGE>

- --------------------------------------------------------------------------------

or the BT Service Center at 1-800-730-1313 if you need additional copies of
financial reports.

EXCHANGE PRIVILEGE

Shareholders may exchange their shares for shares of certain other funds in the
BT Family of Funds registered in their state. The Fund reserves the right to
terminate or modify the exchange privilege in the future. To make an exchange,
follow the procedures indicated in "How to Buy Shares" and "How to Sell Shares"
herein. Before making an exchange, please note the following:

(Bullet) Call your Service Agent for information and a prospectus. Read the
prospectus for relevant information.

(Bullet) Your new account will have the identical account registration including
the same name, address and taxpayer identification number as your
existing account(s).

(Bullet) 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.

Note that exchanges out of a Fund may be limited to four per calendar year and
that they may have tax consequences for you.

SYSTEMATIC PROGRAMS

TO MOVE MONEY FROM YOUR BANK ACCOUNT TO BT PYRAMID MUTUAL FUNDS

<TABLE>
<S> <C>
MINIMUM MINIMUM FREQUENCY SETTING UP OR CHANGING
INITIAL SUBSEQUENT
$1,000 $100 Monthly, bimonthly, For a new account, complete the appropriate section on the
quarterly or application.
semi-annually
For existing accounts, call your Investment Professional for an
application. To change the amount
or frequency of your investment,
contact your Investment
Professional directly or call
1-800-730-1313. Call at least 10
business days prior to your next
scheduled investment date.
</TABLE>

SYSTEMATIC WITHDRAWAL PROGRAM lets you set up periodic redemptions from your
account.

<TABLE>
<S> <C>
MINIMUM FREQUENCY SETTING UP OR CHANGING
$100 Monthly, quarterly, semi-annually or To establish, call your Investment
annually
Professional
or call
1-800-730-1313
after
your
account
is open.
The
accounts
from
which
the
withdrawals
will be
processed
must
have a
minimum
balance
of
$10,000,
other
than
retirement
accounts
subject
to
required
minimum
distributions.
</TABLE>

TAX-SAVING RETIREMENT PLANS

Retirement plans offer significant tax savings and are available to individuals,
partnerships, small businesses, corporations, nonprofit organizations and other
institutions. Contact Bankers Trust for further information. Bankers Trust can
set up your new account in the Fund under a number of several tax-savings or
tax-deferred plans. Minimums may differ from those listed elsewhere in this
Prospectus.

(Bullet) INDIVIDUAL RETIREMENT ACCOUNTS (IRAS): personal savings plans that
offer tax advantages for individuals to set aside money for retirement
and allow new contributions of $2,000 per tax year.

(Bullet) ROLLOVER IRAS: tax-deferred retirement accounts that retain the special
tax advantages of lump sum distributions from qualified retirement
plans and transferred IRA accounts.

<PAGE>

- --------------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------

DISTRIBUTIONS. The Fund distributes substantially all of its net investment
income and capital gains to shareholders each year. Income dividends are
declared daily and paid monthly. Any net capital gains are distributed annually.
Unless a shareholder instructs the Trust to pay such dividends and distributions
in cash, they will be automatically reinvested in additional shares of the Fund.

FEDERAL TAXES. The Fund intends to qualify as a regulated investment company, as
defined in the Internal Revenue Code of 1986, as amended (the "Code"). Provided
the Fund meets the requirements imposed by the Code and distributes all of its
income and gains, the Fund will not pay any federal income or excise taxes. The
Portfolio will also not be required to pay any federal income or excise taxes.

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 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 November and 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 in
the past year.

CAPITAL GAINS. 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.

"BUYING A DIVIDEND." On the ex-date for a distribution from income and/or
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 TAX INFORMATION. In addition to federal taxes, you may be subject to state
or local taxes on your investment, depending on the laws in your area. You
should consult with your own tax adviser concerning the application of federal,
state and local taxes to your distributions from the Fund.

- --------------------------------------------------------------------------------
PERFORMANCE AND INFORMATION REPORTS
- --------------------------------------------------------------------------------

The Fund's performance may be used from time to time in advertisements,
shareholder reports or other communications to shareholders or prospective
shareholders. Performance information may include the Fund's investment results
and/or comparisons of its investment results to various unmanaged indices such
as the Lehman Brothers 1-3 Year Government Index, the Lehman Brothers Government
Bond Index, the Lehman Brothers Intermediate Term Bond Index, IBC Financial Data
Averages, Lipper Short/Intermediate U.S. Government Average or results of other
mutual funds or investment or savings vehicles. In addition, the Fund may
compare various Portfolio characteristics such as sector diversification, yield
to maturity, duration, adjusted duration and average maturity. The Fund's
investment results as used in such communications will be calculated on a yield
or total rate of return basis in the manner set forth herein. From time to time,
fund rankings may be quoted from various sources, such as Lipper Analytical
Services, Inc., Value Line and Morningstar, Inc.

The Trust may provide period and average annualized "total return" quotations
for the Fund. The Fund's "total return" refers to the change in the value of an
investment in the Fund 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 gain 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.

The Trust may provide annualized "yield" quotations for the Fund. The "yield" of
the Fund refers to the income generated by an investment in the Fund 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

<PAGE>

- --------------------------------------------------------------------------------

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 Portfolio
and changes in the Fund's expenses. In addition, during certain periods for
which total return quotations or yields may be provided, Bankers Trust, as
Adviser, Service Agent or Administrator, may have voluntarily agreed to waive
portions of their fees on a month-to-month basis. Such waivers will have the
effect of increasing the Fund's net income (and therefore its total return or
yield) during the period such waivers are in effect.

Shareholders will receive financial reports semi-annually that include the
Portfolio's financial statements, including listings of investment securities
held by the Portfolio at those dates. Annual reports are audited by independent
accountants.

- --------------------------------------------------------------------------------
MANAGEMENT OF THE TRUST AND PORTFOLIO
- --------------------------------------------------------------------------------

BOARD OF TRUSTEES

The affairs of the Trust and the Portfolio are managed under the supervision of
their respective Boards of Trustees. By virtue of the responsibilities assumed
by Bankers Trust, as the administrator of the Trust and the Portfolio, neither
the Trust nor the Portfolio requires employees other than its executive
officers. None of the executive officers of the Trust or the Portfolio devotes
full time to the affairs of the Trust or the Portfolio.

The Trustees of the Trust who are not "interested persons" (as defined in the
1940 Act) (the "Independent Trustees") of the Trust or of the Portfolio, as the
case may be, have adopted written procedures reasonably appropriate to deal with
potential conflicts of interest, up to and including creating separate boards of
trustees, arising from the fact that several of the same individuals are
Trustees of the Trust and the Portfolio. For more information with respect to
the Trustees of both the Trust and the Portfolio, see "Management of the Trust
and Portfolio" in the SAI.

INVESTMENT ADVISER

The Trust has not retained the services of an investment adviser since the Trust
seeks to achieve the investment objective of the Fund by investing all the
Assets of the Fund in the Portfolio. The Portfolio has retained the services of
Bankers Trust, as investment adviser. Mr. Louis M. Hudson, Vice President, is
responsible for the day to day management of the Portfolio. Mr. Hudson has been
employed by Bankers Trust since 1961 and has managed the Portfolio's assets
since February, 1994.

BANKERS TRUST COMPANY AND ITS AFFILIATES

Bankers Trust, 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
markets.

As of December 31, 1997, Bankers Trust New York Corporation was the seventh
largest bank holding company in the United States with total assets of over $100
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.
Investment management is a core business of Bankers Trust, built on a tradition
of excellence from its roots as a trust bank founded in 1903. 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.

Bankers Trust has more than 50 years of experience managing retirement assets
for the nation's largest corporations and institutions. In the past, these
clients have been serviced through separate account and commingled fund
structures. Now, the BT Family of Funds brings Bankers Trust's extensive
investment management

<PAGE>

- --------------------------------------------------------------------------------

expertise -- once available to only the largest institutions in the U.S. -- to
individual investors. Bankers Trust's officers have had extensive experience in
managing investment portfolios having objectives similar to those of the
Portfolio.

Bankers Trust, subject to the supervision and direction of the Board of Trustees
of the Portfolio, manages the Portfolio in accordance with the Portfolio's
investment objective and stated investment policies, makes investment decisions
for the Portfolio, places orders to purchase and sell securities and other
financial instruments on behalf of the Portfolio and employs professional
investment managers and securities analysts who provide research services to the
Portfolio. All orders for investment transactions on behalf of the Portfolio are
placed by Bankers Trust with broker-dealers and other financial intermediaries
that it selects, including those affiliated with Bankers Trust. A Bankers Trust
affiliate will be used in connection with a purchase or sale of an investment
for the Portfolio only if Bankers Trust believes that the affiliate's charge for
the transaction does not exceed usual and customary levels. The Portfolio will
not invest in obligations for which Bankers Trust or any of its affiliates is
the ultimate obligor or accepting bank. The Portfolio may, however, invest in
the obligations of correspondents or customers of Bankers Trust.

Under its Investment Advisory Agreement, Bankers Trust receives a fee from the
Portfolio, computed daily and paid monthly, at the annual rate of 0.25% of the
average daily net assets of the Portfolio.

Under certain circumstances Bankers Trust has agreed to pay fees to certain
securities brokers, dealers and other entities that facilitate the sale of Fund
shares, and in connection therewith provide administrative, shareholder, or
distribution related services to the Fund or its shareholders. Fees paid to
entities that administer mutual fund "supermarkets" may be higher than fees paid
for other types of services.

Bankers Trust has been advised by its counsel that, in counsel's opinion,
Bankers Trust currently may perform the services for the Trust and the Portfolio
described in this Prospectus and the SAI without violation of the Glass-Steagall
Act or other applicable banking laws or regulations.

ADMINISTRATOR

Under its Administration and Services Agreement with the Trust, Bankers Trust
calculates the NAV 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, at the annual rate of 0.30% of the
average daily net assets of the Fund.

Under an Administration and Services Agreement with the Portfolio, Bankers Trust
calculates the value of the assets of the Portfolio and generally assists the
Board of Trustees of the Portfolio in all aspects of the administration and
operation of the Portfolio. The Administration and Services Agreement provides
for the Portfolio to pay Bankers Trust a fee computed daily and paid monthly at
the annual rate of 0.05% of the average daily net assets of the Portfolio. Under
each Administration and Services Agreement, Bankers Trust may delegate one or
more of its responsibilities to others, including Edgewood and its affiliates,
at Bankers Trust's expense. For more information, see the SAI.

DISTRIBUTOR

Edgewood Services, Inc. is the principal distributor for shares of the Fund. In
addition, Edgewood and its affiliates provide the Trust with office facilities
and currently provide administration and distribution services for other
registered investment companies. The principal business address of Edgewood and
its affiliates is Clearing Operations, P.O. Box 897, Pittsburgh, Pennsylvania,
15230-0897.

SERVICE AGENT

<PAGE>

- --------------------------------------------------------------------------------

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 Bankers Trust, 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 acts as Custodian of the assets of the Trust and the Portfolio and
serves as the Transfer Agent for the Trust and the Portfolio under the
Administration and Services Agreement with the Trust and the Portfolio.

ORGANIZATION OF THE TRUST

The Trust was organized on February 28, 1992, under the laws of the Commonwealth
of Massachusetts. The Fund is a separate series of the Trust. The Trust offers
shares of beneficial interest of separate series, par value $0.001 per share.
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.

When matters are submitted for shareholder vote, shareholders of the Fund will
have one vote for each full share held and proportionate, fractional votes for
fractional shares held. A separate vote of the Fund is required on any matter
affecting the Fund on which shareholders are entitled to vote. Shareholders of
the Fund are not entitled to vote on Trust matters that do not affect the Fund.
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.

The Portfolio, in which all the Assets of the Fund will be invested, is
organized as a trust under the laws of the State of New York. The Portfolio's
Declaration of Trust provides that the Fund and other entities investing in the
Portfolio (e.g., other investment companies, insurance company separate accounts
and common and commingled trust funds) will each be liable for all obligations
of the Portfolio. However, the risk of the Fund incurring financial loss on
account of such liability is limited to circumstances in which both inadequate
insurance existed and the Portfolio itself was unable to meet its obligations.
Accordingly, the Trustees of the Trust believe that neither the Fund nor its
shareholders will be adversely affected by reason of the Fund's investing in the
Portfolio.

Each series of the Trust will not be involved in any vote involving a Portfolio
in which it does not invest its Assets. Shareholders of all of the series of the
Trust will, however, vote together to elect Trustees of the Trust and for
certain other matters. Under certain circumstances, the shareholders of one or
more series could control the outcome of these votes.

EXPENSES OF THE TRUST

The Fund bears its own expenses. Operating expenses for the Fund generally
consist of all costs not specifically borne by Bankers Trust or Edgewood,
including administration and services fees, fees for necessary professional
services, amortization of organizational expenses, and costs associated with
regulatory compliance and maintaining legal existence and shareholder relations.
The Portfolio bears its own expenses. Operating expenses for the Portfolio
generally consist of all costs not specifically borne by Bankers Trust or
Edgewood, including investment advisory and administration and services fees,
fees for necessary professional services, amortization of organization expenses,
the costs associated with regulatory compliance and maintaining legal existence
and investor relations.

<PAGE>

(THIS PAGE INTENTIONALLY LEFT BLANK)

<PAGE>

BT PYRAMID MUTUAL FUNDS
BT INVESTMENT LIMITED TERM U.S. GOVERNMENT SECURITIES FUND

INVESTMENT ADVISER OF THE PORTFOLIO AND ADMINISTRATOR
BANKERS TRUST COMPANY
130 Liberty Street
(One Bankers Trust Plaza)
New York, NY 10006

CUSTODIAN AND TRANSFER AGENT BANKERS TRUST COMPANY 130 Liberty Street (One
Bankers Trust Plaza)
New York, NY 10006

INDEPENDENT ACCOUNTANTS
COOPERS & LYBRAND L.L.P.
1100 Main Street, Suite 900
Kansas City, MO 64105

COUNSEL
WILLKIE FARR & GALLAGHER
153 East 53rd Street
New York, NY 10022

.......................................

No person has been authorized to give any information or to make any
representations other than those contained in the Trust's Prospectuses, its
Statements of Additional Information 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. This Prospectus does not constitute an offer in any
state in which, or to any person to whom, such offer may not lawfully be made.

.......................................

Cusip #055847305
STA461300 (1/98)

STATEMENT OF
ADDITIONAL INFORMATION
JANUARY 31, 1998

BT PYRAMID MUTUAL FUNDS

BT INVESTMENT LIMITED TERM U.S. GOVERNMENT SECURITIES FUND

The Fund seeks a high level of current income through investment in short-term
and intermediate-term U.S. government securities.

As described in the Prospectus, the Trust seeks to achieve the investment
objective of the Fund by investing all the investable assets of the Fund in the
Short/Intermediate U.S. Government Securities Portfolio (the "Portfolio"), an
open-end management investment company having the same investment objective as
the Fund.

Shares of the Fund are sold by Edgewood Services, Inc. ("Edgewood") , the
Trust's Distributor, to clients and customers (including affiliates and
correspondents) of Bankers Trust Company ("Bankers Trust"), the Portfolio's
investment adviser ("Adviser") , and to clients and customers of other
organizations.

The Trust's Prospectus relating to the Fund is dated January 31, 1998, and
provides the basic information investors should know before investing. You may
request the Prospectus or a paper copy of this Statement, if you have received
it electronically, free of charge by calling the Trust at the telephone number
listed below or by contacting any Service Agent. This Statement of Additional
Information, which is not a Prospectus, is intended to provide additional
information regarding the activities and operations of the Trust and should be
read in conjunction with the Prospectus. Capitalized terms not otherwise defined
in this Statement of Additional Information have the meanings accorded to them
in the Trust's Prospectus.

INVESTMENT ADVISER OF THE PORTFOLIO AND ADMINISTRATOR

BANKERS TRUST COMPANY

DISTRIBUTOR

EDGEWOOD SERVICES, INC.

CLEARING OPERATIONS PITTSBURGH, PENNSYLVANIA 15230-0897
1-800- 730-1313
P.O BOX 897

<PAGE>

TABLE OF CONTENTS

Investment Objectives, Policies and Restrictions..............................1

Performance Information.......................................................14

Valuation of Securities; Redemptions and Purchases in Kind....................17

Management of the Trust and Portfolio.........................................18

Organization of the Trust.....................................................23

Taxation......................................................................24

Financial Statements..........................................................24

Appendix......................................................................25

<PAGE>

INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS

INVESTMENT OBJECTIVES

The investment objective of the Fund is described in the Fund's Prospectus.
There can, of course, be no assurance that the Fund will achieve its investment
objective.

INVESTMENT POLICIES

The Fund seeks to achieve its investment objective by investing all of its
Assets in the Portfolio. The Trust may withdraw the Fund's investment from the
Portfolio at any time if the Board of Trustees of the Trust determines that it
is in the best interests of the Fund to do so.

Since the investment characteristics of the Fund will correspond directly to
those of the Portfolio, the following is a discussion of the various investments
of and techniques employed by the Portfolio.

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 "1933 Act"),
securities which are otherwise not readily marketable and repurchase agreements
having a remaining maturity of longer than seven calendar 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 calendar 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.

In recent years, however, 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.
("NASD").

The Adviser will monitor the liquidity of Rule 144A securities in the
Portfolio's portfolio holdings under the supervision of the Portfolio's Board of
Trustees. 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 wishing
to purchase or sell 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).

LENDING OF PORTFOLIO SECURITIES. The Portfolio has the authority to lend
portfolio securities to brokers, dealers and other financial organizations. The
Portfolio will not lend securities to Bankers Trust, Edgewood or their
affiliates. By lending its securities, the Fund can increase its income 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. 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 Portfolio
will adhere to the following conditions whenever its securities are loaned: (i)
the Portfolio 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 Portfolio must be able to terminate
the loan at any time; (iv) the Portfolio 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 Portfolio 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.

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
Portfolio 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 Portfolio 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, and foreign
government 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 Portfolio 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
("GNMA") modified pass-through mortgage-backed securities and three-month U.S.
Treasury Bills. The Portfolio 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 Portfolio 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 Portfolio
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 Portfolio will incur brokerage fees when
it purchases or sells futures contracts.

The purpose of the acquisition or sale of a futures contract, when the Portfolio
holds or intends to acquire fixed-income securities, is to attempt to protect
the Portfolio 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 Portfolio 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 Portfolio. If interest rates did increase, the value of the debt security
in the Portfolio would decline, but the value of the futures contracts to the
Portfolio would increase at approximately the same rate, thereby keeping the net
asset value of the Portfolio from declining as much as it otherwise would have.
The Portfolio 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 Portfolio 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 Portfolio 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 Portfolio could then buy debt securities
on the cash market. To the extent the Portfolio enters into futures contracts
for this purpose, the assets in the segregated asset account maintained to cover
the Portfolio's obligations with respect to such futures contracts will consist
of cash, cash equivalents or high quality liquid debt securities 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 Portfolio 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 Portfolio, if the Adviser's investment
judgment about the general direction of interest rates is incorrect, the
Portfolio's overall performance would be poorer than if it had not entered into
any such contract. For example, if the Portfolio 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 Portfolio 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
Portfolio 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 Portfolio may have to sell securities at a time when it may be
disadvantageous to do so.

OPTIONS ON FUTURES CONTRACTS. The Portfolio intends to 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 Portfolio 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 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 Portfolio will retain
the full amount of the option premium which provides a partial hedge against any
decline that may have occurred in the Portfolio's portfolio holdings. The
writing of a put option on a futures contract constitutes a partial hedge
against increasing prices of the 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 Portfolio will
retain the full amount of the option premium which provides a partial hedge
against any increase in the price of securities which the Portfolio intends to
purchase. If a put or call option the Portfolio has written is exercised, the
Portfolio 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 Portfolio'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 Portfolio 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 Portfolio 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 only as a hedge and not for speculation. In
addition, the Portfolio 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 Portfolio and premiums paid on outstanding options
on futures contracts owned by the Portfolio would exceed 5% of the market value
of the net assets of the Portfolio.

The Portfolio may buy and sell options and futures contracts to manage its
exposure to changing interest rates and security prices. Some options and
futures strategies, including selling futures, buying puts, and writing calls,
hedge the Portfolio's investments against price fluctuations. Other strategies,
including buying futures, writing puts and buying calls, tend to increase market
exposure. The Portfolio may invest in options (including over-the-counter
options) and futures contracts with respect to any type of security which the
Portfolio could hold directly or indexes composed only of such securities.

Options and futures can be volatile investments, and involve certain risks. If
Bankers Trust applies a hedge at an inappropriate time or judges interest rates
incorrectly, options and futures strategies may lower the Portfolio's return.
The costs of hedging are not reflected in the Portfolio's yield but are
reflected in the Portfolio's total return. The Portfolio could also experience
losses if its options and futures positions were poorly correlated with its
other investments, or if it could not close out its positions because of an
illiquid secondary market.

ADDITIONAL RISKS OF OPTIONS ON FUTURES CONTRACTS, FORWARD CONTRACTS AND OPTIONS
ON FOREIGN CURRENCIES. Unlike transactions entered into by the Portfolio 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 ("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 a Portfolio 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. A Portfolio'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, each Portfolio
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
Portfolio'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.

OPTIONS ON SECURITIES. The Portfolio may 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 Portfolio 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 Portfolio.

When the Portfolio 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 Portfolio 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 Portfolio has no control, the
Portfolio must sell the underlying security to the option holder at the exercise
price. By writing a covered call option, the Portfolio 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 underlying
security above the exercise price.

When the Portfolio writes a covered put option, it gives the purchaser of the
option the right to sell the underlying security to the Portfolio at the
specified exercise price at any time during the option period. If the option
expires unexercised, the Portfolio 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 Portfolio has no control, the Portfolio must purchase
the underlying security from the option holder at the exercise price. By writing
a covered put option, the Portfolio, 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 Portfolio will only write put options involving
securities for which a determination is made at the time the option is written
that the Portfolio wishes to acquire the securities at the exercise price.

When the Portfolio writes an option, an amount equal to the net premium received
by the Portfolio is included in the liability section of the Portfolio'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 Portfolio enters into a closing purchase transaction, the
Portfolio 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 Portfolio 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 Portfolio.

The Portfolio may purchase call and put options on any securities in which it
may invest. The Portfolio 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 Portfolio, in exchange for the premium paid, to
purchase a security at a specified price during the option period. The Portfolio
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.

The Portfolio 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 Portfolio, in exchange for the premium paid, to sell a
security, which may or may not be held in the Portfolio's portfolio securities,
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 Portfolio's portfolio securities. Put options also may be purchased by the
Portfolio for the purpose of affirmatively benefiting from a decline in the
price of securities which the Portfolio does not own. The Portfolio 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.

The Portfolio has adopted certain other nonfundamental policies concerning
option transactions which are discussed below. The Portfolio's activities in
options may also be restricted by the requirements of the Internal Revenue Code
of 1986, as amended (the "Code"), for qualification as a regulated investment
company.

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 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.

The Portfolio 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
Portfolio 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 whom the Portfolio enters into such options
transactions under the general supervision of the Portfolio's Trustees.

OPTIONS ON SECURITIES INDICES. The Portfolio 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."

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 Portfolio
generally will only purchase or write such an option if the Adviser believes the
option can be closed out.

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 Portfolio 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.

Price movements in the Portfolio's portfolio securities 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.

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, Bankers Trust also makes its own evaluation of these securities,
subject to review by the Board of Trustees. After purchase by the Portfolio, an
obligation may cease to be rated or its rating may be reduced below the minimum
required for purchase by the Portfolio. Neither event would require the
Portfolio to eliminate the obligation from its portfolio, but Bankers Trust will
consider such an event in its determination of whether the Portfolio should
continue to hold the obligation. A description of the ratings used herein and in
the Funds' Prospectus is set forth in the Appendix to this Statement of
Additional Information.

INVESTMENT RESTRICTIONS

The following investment restrictions are "fundamental policies" of the Fund and
the Portfolio and may not be changed with respect to the Fund or the Portfolio
without the approval of a "majority of the outstanding voting securities" of the
Fund or the Portfolio, as the case may be. "Majority of the outstanding voting
securities" under the Investment Company Act of 1940, as amended (the "1940
Act"), and as used in this Statement of Additional Information and the
Prospectus, means, with respect to the Fund (or the Portfolio), the lesser of
(i) 67% or more of the outstanding voting securities of the Fund (or of the
total beneficial interests of the Portfolio) present at a meeting, if the
holders of more than 50% of the outstanding voting securities of the Fund (or of
the total beneficial interests of the Portfolio) are present or represented by
proxy or (ii) more than 50% of the outstanding voting securities of the Fund (or
of the total beneficial interests of the Portfolio). Whenever the Trust is
requested to vote on a fundamental policy of a Portfolio, the Trust will hold a
meeting of the corresponding Fund's shareholders and will cast its vote as
instructed by that Fund's shareholders. Fund shareholders who do not vote will
not affect the Trust's votes at the Portfolio meeting. The percentage of the
Trust's votes representing Fund shareholders not voting will be voted by the
Trustees of the Trust in the same proportion as the Fund shareholders who do, in
fact, vote.

As a matter of fundamental policy, the Portfolio (or Fund) may not (except that
no investment restriction of a Fund shall prevent a Fund from investing all of
its Assets in an open-end investment company with substantially the same
investment objective):

(1)borrow money or mortgage or hypothecate assets of the Portfolio (Fund),
except that in an amount not to exceed 1/3 of the current value of the
Portfolio's (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 of
portfolio securities or to maintain liquidity in the event of an
unanticipated failure to complete a 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. (As an operating
policy, the Portfolio may not engage in dollar roll transactions);

(2)underwrite securities issued by other persons except insofar as the
Portfolio (Trust or the Fund) may technically be deemed an underwriter
under the 1933 Act in selling a portfolio security;

(3)make loans to other persons except: (a) through the lending of the
Portfolio's (Fund's) portfolio securities and provided that any such loans
not exceed 30% of the Portfolio's (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 Portfolio (Trust) may hold and sell, for the
Portfolio's (Fund's) portfolio securities, real estate acquired as a
result of the Portfolio's (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 a Portfolio's (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.

ADDITIONAL RESTRICTIONS. In order to comply with certain statutes and policies
the Portfolio (or the Trust, on behalf of the Fund) will not as a matter of
operating policy (except that no operating policy shall prevent the Fund from
investing all of its Assets in an open-end investment company with substantially
the same investment objective):

(i) borrow money (including through dollar roll transactions) for any purpose
in excess of 10% of the Portfolio's (Fund's) total assets (taken at cost),
except that the Portfolio (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
Portfolio's (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 any security which it does not own unless by virtue of its ownership
of other securities it has at the time of sale a right to obtain
securities, without payment of further consideration, equivalent in kind
and amount to the securities sold and provided that if such right is
conditional the sale is made upon the same conditions;

(v) invest for the purpose of exercising control or management;

(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 Portfolio (Fund) if such
purchase at the time thereof would cause (a) more than 10% of the
Portfolio's (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 Portfolio's (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 Portfolio (Fund), unless permitted to exceed these limitations by
an exemptive order of the SEC; provided further that, except in the case of
merger or consolidation, the Portfolio (Fund) shall not purchase any
securities of any open-end investment company unless the Portfolio (Fund)
(1) waives the investment advisory fee with respect to assets invested in
other open-end investment companies and (2) incurs no sales charge in
connection with the investment.

(vii) invest more than 15% of the Portfolio's (Fund's) net assets (taken at the
greater of cost or market value) in securities that are illiquid or not
readily marketable not including (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 Portfolio's (Fund'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 Portfolio's (Fund's) Board of Trustees
have determined that the commercial paper is equivalent quality and is
liquid;

(viii)invest more than 10% of the Portfolio's (Fund's) total assets (taken at
the greater of cost or market value) in securities that are restricted as
to resale under the 1933 Act (other than Rule 144A securities deemed
liquid by the Portfolio's (Fund's) Board of Trustees);

(ix) no more than 5% of the Portfolio's (Fund's) total assets are invested in
securities issued by issuers which (including predecessors) have been in
operation less than three years;

(x) with respect to 75% of the Portfolio's (Fund's) total assets, purchase
securities of any issuer if such purchase at the time thereof would cause
the Portfolio (Fund) to hold more than 10% of any class of securities of
such issuer, for which purposes all indebtedness of an issuer shall be
deemed a single class and all preferred stock of an issuer shall be deemed
a single class, except that futures or option contracts shall not be
subject to this restriction;

(xi) if the Portfolio (Fund) is a "diversified" fund with respect to 75% of its
assets, invest more than 5% of its total assets in the securities
(excluding U.S. government securities) of any one issuer;

(xii) purchase or retain in the Portfolio's (Fund's) portfolio securities any
securities issued by an issuer any of whose officers, directors, trustees
or security holders is an officer or Trustee of the Portfolio (Trust), or
is an officer or partner of the Adviser, if after the purchase of the
securities of such issuer for the Portfolio (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;

(xiii)invest more than 5% of the Portfolio's (Fund's) net assets in warrants
(valued at the lower of cost or market) (other than warrants acquired by
the Portfolio (Fund) as part of a unit or attached to securities at the
time of purchase), but not more than 2% of the Portfolio's (Fund's) net
assets may be invested in warrants not listed on the New York Stock
Exchange, Inc. (the "NYSE") or the American Stock Exchange;

(xiv) make short sales of securities or maintain a short position, unless at all
times when a short position is open it owns an equal amount of such
securities or securities convertible into or exchangeable, without payment
of any further consideration, for securities of the same issue and equal
in amount to, the securities sold short, and unless not more than 10% of
the Portfolio's (Fund's) net assets (taken at market value) is represented
by such securities, or securities convertible into or exchangeable for
such securities, at any one time (the Portfolio (Fund) has no current
intention to engage in short selling);

(xv) 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 policies of the Portfolio (Fund) and the option is issued by the
Options Clearing Corporation, 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 50% of the
Portfolio's (Fund's) net assets; (c) the securities subject to the exercise
of the call written by the Portfolio (Fund) must be owned by the Portfolio
(Fund) at the time the call is sold and must continue to be owned by the
Portfolio (Fund) until the call has been exercised, has lapsed, or the
Portfolio (Fund) has purchased a closing call, and such purchase has been
confirmed, thereby extinguishing the Portfolio's (Fund's) obligation to
deliver securities pursuant to the call it has sold; and (d) at the time a
put is written, the Portfolio (Fund) establishes a segregated account with
its custodian consisting of cash or short-term U.S. government securities
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 Portfolio (Fund) has purchased a closing
put, which is a put of the same series as the one previously written); and

(xvi) 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 Portfolio's (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 Portfolio's (Fund's) net
assets.

PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS

The Adviser is responsible for decisions to buy and sell securities, futures
contracts and options on such securities and futures for the Portfolio, 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 Portfolio 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 Portfolio. 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 Portfolio 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
Portfolio 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
Portfolio 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 Rules of Fair Practice of the NASD
and such other policies as the Trustees of the Portfolio may determine, the
Adviser may consider sales of shares of the Fund as a factor in the selection of
broker-dealers to execute portfolio transactions. Bankers Trust will make such
allocations if commissions are comparable to those charged by nonaffiliated,
qualified broker-dealers for similar services.

Higher commissions may be paid to firms that provide research services to the
extent permitted by law. Bankers Trust may use this research information in
managing the Portfolio'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 Portfolio and to the Adviser, it is the opinion of
the management of the Portfolio 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 Portfolio, and not
all such information is used by the Adviser in connection with the Portfolio.
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 Portfolio.

In certain instances there may be securities which are suitable for the
Portfolio as well as for one or more of the Adviser's other clients. Investment
decisions for the Portfolio 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 Portfolio is concerned. However, it is believed that
the ability of the Portfolio to participate in volume transactions will produce
better executions for the Portfolio.

For the fiscal year ended September 30, 1997 and for the period from January 1,
1996 through September 30, 1996, and the fiscal year ended December 31, 1995,
the Portfolio did not incur brokerage commissions.

PERFORMANCE INFORMATION

STANDARD PERFORMANCE INFORMATION

From time to time, quotations of the Fund's performance may be included in
advertisements, sales literature or shareholder reports. These performance
figures are calculated in the following manner:

YIELD: Yield for the Fund used in advertising is computed by dividing the Fund's
interest and dividend income for a given 30-day or one-month period, net of
expenses, by the average number of shares entitled to receive distributions
during the period, dividing this figure by the Fund's net asset value per share
at the end of the period, and annualizing the result (assuming compounding of
income) in order to arrive at an annual percentage rate. Income is calculated
for purpose of yield quotations in accordance with standardized methods
applicable to all stock and bond mutual funds. Dividends from equity investments
are treated as if they were accrued on a daily basis, solely for the purpose of
yield calculations. In general, interest income is reduced with respect to bonds
trading at a premium over their par value by subtracting a portion of the
premium from income on a daily basis, and is increased with respect to bonds
trading at a discount by adding a portion of the discount to daily income.
Capital gains and losses generally are excluded from the calculation.

Income calculated for the purposes of calculating the Fund's yield differs from
income as determined for other accounting purposes. Because of the different
accounting methods used, and because of the compounding assumed in yield
calculations, the yield quoted for the Fund may differ from the rate of
distributions of the Fund paid over the same period or the rate of income
reported in the Fund's financial statements.

The Fund's yield for the 30-day period ended September 30, 1997, was 5.27%.

TOTAL RETURN: A Fund's average annual total return will be 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. The Fund may also calculate total
return figures which represent aggregate performance over a period or
year-by-year performance.

The Fund's average annual total returns for the one-year period ended September
30, 1997, and for the period from August 24, 1992 (commencement of operations)
to September 30, 1997, were 6.22%, and 4.92%, respectively.

PERFORMANCE RESULTS: 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 the Portfolio, but also on changes in the current value of such securities
and on changes in the expenses of the Fund and the Portfolio. 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.

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.

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.

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.

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 Trust 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

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. Other assets are valued at fair value using methods
determined in good faith by the Portfolio's Board of Trustees.

The Trust, on behalf of the Fund, and the Portfolio 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, or the Portfolio, as the case may be,
and valued as they are for purposes of computing the Fund's or the Portfolio's
net asset value, as the case may be (a redemption in kind). If payment is made
to a Portfolio or 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, and the Portfolio have elected, however, to be
governed by Rule 18f-1 under the 1940 Act as a result of which the Fund and the
Portfolio are obligated to redeem shares of beneficial interests, as the case
may be, 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 or
the Portfolio, as the case may be, at the beginning of the period.

The Portfolio has agreed to make a redemption in kind to the Fund whenever the
Fund wishes to make a redemption in kind and therefore shareholders of the Fund
that receive redemptions in kind will receive portfolio securities of the
Portfolio and in no case will they receive a security issued by the Portfolio.
The Portfolio has advised the Trust that the Portfolio will not redeem in kind
except in circumstances in which the Fund is permitted to redeem in kind or
unless requested by the Fund.

Each investor in the Portfolio, including the Fund, may add to or reduce its
investment in the Portfolio on each day that the NYSE is open for business and
New York charter banks are not closed owing to customary or local holidays. As
of the close of the NYSE, currently 4:00 p.m. Eastern time (or such earlier time
as the NYSE closes) on each such day, the value of each investor's interest in
the Portfolio will be determined by multiplying the net asset value of the
Portfolio by the percentage representing that investor's share of the aggregate
beneficial interests in the Portfolio. Any additions or reductions which are to
be effected on that day will then be effected. The investor's percentage of the
aggregate beneficial interests in the Portfolio will then be recomputed as the
percentage equal to the fraction (i) the numerator of which is the value of such
investor's investment in the Portfolio as of the close of the NYSE on such day
plus or minus, as the case may be, the amount of net additions to or reductions
in the investor's investment in the Portfolio effected on such day and (ii) the
denominator of which is the aggregate net asset value of the Portfolio as of
4:00 p.m. Eastern time or the close of the NYSE on such day plus or minus, as
the case may be, the amount of net additions to or reductions in the aggregate
investments in the Portfolio by all investors in the Portfolio. The percentage
so determined will then be applied to determine the value of the investor's
interest in the Portfolio as of 4:00 p.m. Eastern time or the close of the NYSE
on the following day the NYSE is open for trading.

The Fund may, at its own option, accept securities in payment for shares. The
securities delivered in payment for shares are valued by the method described
under "Net Asset Value" as of the day the Fund receives the securities. This is
a taxable transaction to the shareholder. Securities may be accepted in payment
for shares only if they are, in the judgment of Bankers Trust, appropriate
investments for the Fund's Portfolio. In addition, securities accepted in
payment for shares must: (i) meet the investment objective and policies of the
acquiring Fund's Portfolio; (ii) be acquired by the applicable Fund for
investment and not for resale (other than for resale to the Fund's Portfolio);
(iii) be liquid securities which are not restricted as to transfer either by law
or liquidity of 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. When securities are used as payment for shares or as a redemption in
kind from the Fund, the transaction fee will not be assessed. However, the
shareholder will be charged the costs associated with receiving or delivering
the securities. These costs include security movement costs and taxes and
registration costs. The Fund reserves the right to accept or reject at its own
option any and all securities offered in payment for its shares.

MANAGEMENT OF THE TRUST AND PORTFOLIO

The Board of Trustees is composed of persons experienced in financial matters
who meet throughout the year to oversee the activities of the Fund or Portfolio
they represent. In addition, the Trustees review contractual arrangements with
companies that provide services to the Fund and/or Portfolio and review the
Fund's performance.

The Trustees and officers of the Trust and Portfolio, 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

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.

HARRY VAN BENSCHOTEN (birthdate: February 18, 1928) Trustee; Director, Canada
Life Insurance Company of New York; Director, Competitive Technologies, Inc., a
public company listed on the American Stock Exchange; Retired (since 1987);
Corporate Vice President, Newmont Mining Corporation (prior to 1987). His
address is 6581 Ridgewood Drive, Naples, FL 33963.

TRUSTEES OF THE PORTFOLIO

CHARLES P. BIGGAR (birthdate: October 13, 1930) Trustee; Retired; Director of
Chase/NBW Bank Advisory Board; Director, Batemen, Eichler, Hill Richards Inc.;
formerly Vice President of International Business Machines and President of the
National Services and the Field Engineering Divisions of IBM. His address is 12
Hitching Post Lane, Chappaqua, New York 10514.

S. LELAND DILL (birthdate: March 28, 1930) Trustee: Retired; Director, Coutts
Group; Coutts (U.S.A.) International; Coutts Trust Holdings Ltd.; Director,
Zweig Series Trust; formerly, Partner of KPMG Peat Marwick, Mitchell & Co.;
Director, Vintners International Company, Inc.; General Partner of Pemco (an
investment company registered under the 1940 Act). His address is 5070 North
Ocean Drive, Singer Island, Florida 33404.

PHILIP SAUNDERS, JR. (birthdate: October 11, 1935) Trustee; Principal, Philip
Saunders Associates (Consulting); former Director of Financial Industry
Consulting, Wolf & Company; President, John Hancock Home Mortgage Corporation;
and Senior Vice President of Treasury and Financial Services, John Hancock
Mutual Life Insurance Company, Inc. His address is 445 Glen Road, Weston,
Massachusetts 02193.

OFFICERS OF THE TRUST AND PORTFOLIO

Unless otherwise specified, each officer listed below holds the same position
with the Trust and the Portfolio.

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.

Messrs. Petnuch, Davis and Neuman also hold similar positions for other
investment companies for which Edgewood or an affiliate serves as the
principal underwriter.

<PAGE>

TRUSTEE COMPENSATION TABLE

Name, Aggregate Aggregate Total
Position With Compensation Compensation Compensation From
Trust/Portfolio From Trust* From Portfolio** Fund Complex***

Harry Van Benschoten $13,125 N/A $27,500
Trustee of Trust

Martin J. Gruber $13,125 N/A $27,500
Trustee of Trust

Kelvin J. Lancaster $13,125 N/A $27,500
Trustee of Trust

Charles P. Biggar N/A $0 $27,500
Trustee of Portfolio

S. Leland Dill N/A $0 $27,500
Trustee of Portfolio

Philip Saunders, Jr. N/A $0 $27,500
Trustee of the Portfolio

</TABLE>

* The aggregate compensation is provided for BT Pyramid Mutual Funds, which
is comprised of 6 funds. Information is furnished for the Trust's most recent
fiscal year ended December 31, 1997.

** The aggregate compensation is provided for the Trust's most recent fiscal
year ended December 31, 1997.

*** 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, 1997.

Bankers Trust reimbursed the Funds and Portfolios for a portion of their
Trustees fees for the period above. See "Investment Adviser" and "Administrator"
below.

As of December 31, 1997, the Trustees and officers of the Trust and the
Portfolio owned in the aggregate less than 1% of the shares of the Fund or the
Trust (all series taken together).

As of December 31, 1997, the following shareholders of record owned 5% or more
of the outstanding Shares of the Fund: Bankers Trust Company, Trustee for Mapco,
Inc. Profit Sharing and Savings Program 401(k), Nashville, Tennessee, owned
approximately 1,133,747 shares (19.00%); and Bankers Trust Company, Trustee for
Alliance Coal Corp. Profit Sharing and Savings Plan 401(k), Jersey City, NJ
owned approximately 1,105,494 shares (18.00%).

INVESTMENT ADVISER

Under the terms of the Portfolio's investment advisory agreement with Bankers
Trust (the "Advisory Agreement"), Bankers Trust manages the Portfolio subject to
the supervision and direction of the Board of Trustees of the Portfolio. Bankers
Trust will: (i) act in strict conformity with the Portfolio'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 Portfolio in accordance with the
Portfolio's investment objective, restrictions and policies; (iii) make
investment decisions for the Portfolio; and (iv) place purchase and sale orders
for securities and other financial instruments on behalf of the Portfolio.

Bankers Trust bears all expenses in connection with the performance of services
under the Advisory Agreement. The Trust and each Portfolio bears certain other
expenses incurred in their operation, including: taxes, interest, brokerage fees
and commissions, if any; fees of Trustees of the Trust or the Portfolio who are
not officers, directors or employees of Bankers Trust, Edgewood or any of their
affiliates; SEC fees and state Blue Sky qualification fees; charges 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 or the
Portfolio; and any extraordinary expenses.

For the fiscal year ended September 30, 1997, and for the period from January 1,
1996 through September 30, 1996, and the fiscal year ended December 31, 1995,
Bankers Trust earned $135,067, $100,786, and $130,819, respectively, as
compensation for investment advisory services provided to the Portfolio. During
the same periods, Bankers Trust reimbursed $22,777, $20,932, and $25,406,
respectively, to the Portfolio to cover expenses.

The Fund's 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.

Bankers Trust may have deposit, loan and other commercial banking relationships
with the issuers of obligations which may be purchased on behalf of the
Portfolio, 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 Portfolio 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
Portfolio, Bankers Trust will not inquire or take into consideration whether an
issuer of securities proposed for purchase or sale by the Portfolio 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.

ADMINISTRATOR

Under the administration and services agreements, Bankers Trust is obligated on
a continuous basis to provide such administrative services as the Board of
Trustees of the Trust and the Portfolio reasonably deem necessary for the proper
administration of the Trust or the Portfolio. Bankers Trust will generally
assist in all aspects of the Fund's and Portfolio's operations; supply and
maintain office facilities (which may be in Bankers Trust'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), internal auditing,
custodial and trasfer 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 and the Portfolio as
from time to time may be agreed upon by Bankers Trust 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 Bankers Trust.

For the fiscal year ended September 30, 1997, and for the period from January 1,
1996, through September 30, 1996 and for the fiscal year ended December 31,
1995, Bankers Trust earned $161,604, $87,048, and $91,142, respectively, as
compensation for administrative and other services provided to the Fund. During
the same periods, Bankers Trust reimbursed $59,512 , $100,231, and $58,676,
respectively, to the Fund to cover expenses.

For the fiscal year ended September 30, 1997 and for the period from January 1,
1996, through September 30, 1996 and for the fiscal year ended December 31,
1995, Bankers Trust earned $27,013, $20,157, and $26,164, respectively, as
compensation for administrative and other services provided to the Portfolio.

Bankers Trust has agreed that if in any year the aggregate expenses of the Fund
and its Portfolio (including fees pursuant to the investment 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 Statement of Additional Information, the most restrictive annual expense
limitation applicable to any Fund is 2.5% of the Fund's first $30 million of
average annual net assets, 2.0% of the next $70 million of average annual net
assets and 1.5% of the remaining average annual net assets.

CUSTODIAN AND TRANSFER AGENT

Bankers Trust, 130 Liberty Street, One Bankers Trust Plaza, New York, New York
10006, serves as Custodian for the Trust and for the Portfolio pursuant to the
administration and services agreements. As Custodian, it holds the Fund's and
the Portfolio's assets. Bankers Trust also serves as transfer agent of the Trust
and of the Portfolio pursuant to the respective administration and services
agreement. Under its transfer agency agreement with the Trust, Bankers Trust
maintains the shareholder account records for 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 or the Portfolio 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
Portfolio. 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 counsel's opinion,
Bankers Trust currently may perform the services for the Trust and the Portfolio
contemplated by the investment advisory agreement and other activities for the
Fund and the Portfolio described in the Prospectus and this Statement of
Additional Information 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 and the Portfolio. 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 Boards of Trustees
would review the relationships with Bankers Trust and consider taking all
actions necessary in the circumstances.

COUNSEL AND INDEPENDENT ACCOUNTANTS

Willkie Farr & Gallagher, One Citicorp Center, 153 East 53rd Street, New York,
New York 10022-4669, serves as Counsel to the Trust and the Portfolio. Coopers &
Lybrand L.L.P., 1100 Main Street, Suite 900, Kansas City, Missouri 64105 has
been selected as Independent Accountants for the Trust and the Portfolio.

ORGANIZATION OF THE TRUST

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.

Massachusetts law provides that shareholders could under certain circumstances
be held personally liable for the obligations of the Trust. However, 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.

The Trust was organized on February 28, 1992.

TAXATION

TAXATION OF THE FUND

The Fund intends to qualify annually and to elect the Fund to be treated as a
regulated investment company under the Internal Revenue Code of 1986, as amended
(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.

TAXATION OF THE PORTFOLIO

The Portfolio is not subject to the federal income taxation. Instead, the Fund
and other investors investing in the Portfolio must take into account, in
computing their federal income tax liability, their share of the Portfolio's
income, gains, losses, deductions, credits and tax preference items, without
regard to whether they have received any cash distributions from the Portfolio.

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. The Portfolio is
organized as a New York trust. The Portfolio is not subject to any income or
franchise tax in the State of New York or the Commonwealth of Massachusetts.

FINANCIAL STATEMENTS

The financial statements for the Fund for the period ended September 30, 1997,
are incorporated herein by reference to the Fund's Annual Report dated September
30, 1997 (File Nos. 33-45973 and 811-06576). A copy of the Annual Report may be
obtained without charge by contacting the Fund.

<PAGE>

A-11

APPENDIX

BOND AND COMMERCIAL PAPER RATINGS

Set forth below are descriptions of the ratings of Moody's and S&P, which
represent their opinions as to the quality of the securities which they
undertake to rate. It should be emphasized, however, that ratings are relative
and subjective and are not absolute standards of quality.

S&P BOND RATINGS

An S&P corporate debt rating is a current assessment of the creditworthiness of
an obligor with respect to a specific obligation. Debt rated "AAA" has the
highest rating assigned by S&P. Capacity to pay interest and repay principal is
extremely strong. Debt rated "AA" has a very strong capacity to pay interest and
to repay principal and differs from the highest rated issues only in small
degree.

The rating "AA" may be modified by the addition of a plus or minus sign to show
relative standing within such category.

MOODY'S BOND RATINGS

Excerpts from Moody's description of its corporate bond ratings: Aaa judged to
be the best quality, carry the smallest degree of investment risk; Aa judged to
be of high quality by all standards.

FITCH INVESTORS SERVICE BOND RATINGS

AAA. Securities of this rating are regarded as strictly high-grade, broadly
marketable, suitable for investment by trustees and fiduciary institutions, and
liable to but slight market fluctuation other than through changes in the money
rate. The factor last named is of importance varying with the length of
maturity. Such securities are mainly senior issues of strong companies, and are
most numerous in the railway and public utility fields, though some industrial
obligations have this rating. The prime feature of an AAA rating is showing of
earnings several times or many times interest requirements with such stability
of applicable earnings that safety is beyond reasonable question whatever
changes occur in conditions. Other features may enter in, such as a wide margin
of protection through collateral security or direct lien on specific property as
in the case of high class equipment certificates or bonds that are first
mortgages on valuable real estate. Sinking funds or voluntary reduction of the
debt by call or purchase are often factors, while guarantee or assumption by
parties other than the original debtor may also influence the rating.

AA. Securities in this group are of safety virtually beyond question, and as a
class are readily salable while many are highly active. Their merits are not
greatly unlike those of the AAA class, but a security so rated may be of junior
though strong lien in many cases directly following an AAA security or the
margin of safety is less strikingly broad. The issue may be the obligation of a
small company, strongly secured but influenced as to ratings by the lesser
financial power of the enterprise and more local type of market.

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.

<PAGE>

INVESTMENT ADVISER OF THE PORTFOLIO AND ADMINISTRATOR

BANKERS TRUST COMPANY

DISTRIBUTOR

EDGEWOOD SERVICES, INC.

CUSTODIAN AND TRANSFER AGENT

BANKERS TRUST COMPANY

INDEPENDENT ACCOUNTANTS

COOPERS & LYBRAND L.L.P.

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 Prospectuses, its
Statements of Additional Information 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 Prospectuses nor this Statement of
Additional Information constitutes an offer in any state in which, or to any
person to whom, such offer may not lawfully be made.

--------------------

CUSIP: 055847305
STA519400 (1/98)

(BULLET) BT PYRAMID MUTUAL FUNDS (BULLET)

- --------------------------------------------------------------------------------
BT INVESTMENT
EQUITY APPRECIATION FUND
INVESTMENT CLASS
- --------------------------------------------------------------------------------

Seeks capital growth over the long term through investment in medium-sized
companies that show growth potential. Current income is a secondary goal.

PROSPECTUS
- --------------------------------------------------------------------------------
JANUARY 31, 1998

BT Pyramid Mutual Funds (the "Trust") is an open-end management investment
company. The BT Investment Equity Appreciation Fund (the "Fund") is a separate
series of the Trust and offers two classes of shares. The shares offered by this
prospectus are the Investment Class of shares (the "Shares"). The Fund seeks
capital growth over the long-term through investment primarily in companies with
a strong profit growth orientation. Current income is secondary to this
investment objective.

Please read this Prospectus carefully before investing and keep it on file for
future reference. It contains important information including how the Fund
invests and the services available to shareholders.

A Statement of Additional Information ("SAI"), with respect to the Fund, with
the same date has been filed with the Securities and Exchange Commission ("SEC")
and is incorporated herein by reference. You may request a copy of the SAI or a
paper copy of this prospectus, if you have received your prospectus
electronically, free of charge by calling the Trust's Service Agent at
1-800-730-1313. The SAI, material incorporated by reference into this document,
and other information regarding the Trust is maintained electronically with the
SEC at Internet Web site (http://www.sec.gov).

BANKERS TRUST COMPANY ("BANKERS TRUST") IS THE INVESTMENT ADVISER ( THE
"ADVISER") OF THE FUND. SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF,
OR GUARANTEED OR ENDORSED BY, BANKERS TRUST OR ANY OTHER BANKING OR DEPOSITORY
INSTITUTION. SHARES ARE NOT FEDERALLY GUARANTEED OR INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION ("FDIC"), THE U.S. GOVERNMENT, THE FEDERAL RESERVE
BOARD OR ANY OTHER AGENCY AND ARE SUBJECT TO INVESTMENT RISK, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.

EDGEWOOD SERVICES, INC.
Clearing Operations (Bullet) P.O. Box 897 (Bullet) Pittsburgh, Pennsylvania
(Bullet) 15230-0897

<PAGE>

- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------

PAGE
- --------------------------------------------------------------------------------

The Fund.......................................................................3

Who May Want to Invest.........................................................3

Summary of Fund Expenses.......................................................4

Financial Highlights...........................................................5

Investment Objective and Policies..............................................6

Risk Factors: Matching the Fund to Your Investment Needs.......................7

Net Asset Value...............................................................12

Purchase and Redemption of Shares.............................................13

Dividends, Distributions and Taxes............................................17

Performance Information and Reports...........................................18

Management of the Trust.......................................................18
- --------------------------------------------------------------------------------

<PAGE>

- --------------------------------------------------------------------------------
THE FUND
- --------------------------------------------------------------------------------

The Fund invests primarily in common stocks of U.S. companies expected to
produce strong and sustainable profit growth, and to a lesser extent,
growth-oriented international corporation. The Fund will generally invest a
majority of its assets in securities of medium-sized companies, which the Fund
believes includes the highest concentration of companies that meet the profit
growth-oriented objectives of the Fund.

- --------------------------------------------------------------------------------
WHO MAY WANT TO INVEST
- --------------------------------------------------------------------------------

The Fund is designed for investors who are willing to accept short-term domestic
and/or foreign stock market fluctuations in pursuit of potentially higher
long-term returns. The Fund invests for growth and does not pursue income.

The Fund is not in itself a balanced investment plan. Investors should consider
their investment objective and tolerance for risk when making an investment
decision. When investors sell their Fund Shares, they may be worth more or less
than what they originally paid for them.

<PAGE>

- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------

Annual operating expenses are paid out of the assets of the Fund. The Fund pays
an investment advisory fee and an administrative services fee to Bankers Trust.
The Fund also incurs expenses such as maintaining shareholder records and
furnishing shareholder statements. The Fund must provide financial reports.

The following table provides (i) a summary of expenses allocable to the Shares,
as a percentage of the average daily net assets of the Fund; and (ii) an example
illustrating the dollar cost of such expenses on a $1,000 investment in the
Shares.

- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSES
(as a percentage of the average daily net assets of the Fund)
<S><C>
.........................................................................................................................
Investment advisory fee (after reimbursements or waiver) 0.54%
12b-1 fees None
Other expenses (after reimbursements or waivers) 0.46%
.........................................................................................................................
Total operating expenses (after reimbursements or waivers) 1.00%
.........................................................................................................................
EXAMPLE 1 Year 3 Years 5 Years 10 Years
.........................................................................................................................
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time
period $10 $32 $55 $122
</TABLE>

- --------------------------------------------------------------------------------

The expense table and the example above show the costs and expenses that an
investor will bear as a shareholder of the Fund.

Bankers Trust has voluntarily agreed to waive a portion of its investment
advisory fee. Without such waiver during the Fund's last fiscal year, the Fund's
investment advisory fee would have been equal on an annual basis to 0.65% of the
Fund's average daily net assets. The expense table and the example reflect a
voluntary undertaking by Bankers Trust to waive or reimburse expenses such that
the total operating expenses allocable to the Shares will not exceed on an
annual basis 1.00%. For the Fund's last fiscal year, in the absence of this
undertaking, the total operating expenses of the Fund would have been equal on
an annual basis to 1.20%. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN. Moreover, while the example assumes a 5% annual return, actual
performance will vary and may result in a return greater or less than 5%.

The Fund is distributed by Edgewood Services, Inc. ("Edgewood," or the
"Distributor") to investors including customers of Bankers Trust or to customers
of another bank, dealer or other financial intermediary that has a shareholder
servicing agreement with Bankers Trust (along with Bankers Trust, a "Service
Agent"). Some Service Agents may impose certain conditions on their customers in
addition to or different from those imposed by the Fund and may charge their
customers a direct fee for their services, including transaction fees on the
purchase and redemption of Fund shares. Each Service Agent has agreed to
transmit to shareholders who are its customers appropriate disclosures of any
fees that it may charge them directly.

Currently, the Fund has authorized two classes of shares. The Fund would offer
by separate prospectus another class of shares. Because the expenses vary
between classes, performance will vary with respect to each class. Additional
information concerning the Fund's other class of shares is available from
Bankers Trust, as administrator at 1-800-730-1313.

For more information with respect to the expenses of the Fund see "Management of
the Trust" herein.

<PAGE>

- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

The following table shows selected data for a Share outstanding, total
investment return ratios to average net assets and other supplemental data for
the Fund for the periods indicated and has been audited by Coopers & Lybrand
L.L.P., the Fund's independent accountants, who's report thereon appears in the
Fund's Annual Report which is incorporated herein by reference.

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FOR THE FOR THE PERIOD
YEAR ENDED YEAR ENDED JANUARY 1, 1995 TO FOR THE
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, YEAR ENDED
1997 1996 1996+ DECEMBER 31, 1994
<S><C>
.....................................................................................................................
PER SHARE OPERATING
PERFORMANCE:
NET ASSET VALUE, BEGINNING
OF PERIOD.................. $ 15.23 $ 14.14 $ 10.14 $ 9.80
.....................................................................................................................
Income from Investment
Operations
Net Investment Loss...... (0.06) (0.05) (0.02) (0.03)
Net Realized and
Unrealized Gain (Loss)
on Investment
Transactions.......... 2.31 1.72 4.02 0.37
.....................................................................................................................
Total Income (Loss) from
Investment Operations...... 2.25 1.67 4.00 0.34
.....................................................................................................................
Distributions to
Shareholders
Net Realized Gain from
Investment Transactions.. (0.78) (0.58) -- --
.....................................................................................................................
NET ASSET VALUE, END OF
PERIOD..................... $ 16.70 $ 15.23 $ 14.14 $ 10.14
.....................................................................................................................
Total Investment Return.... 15.82% 12.45% 39.45% 3.47%
SUPPLEMENTAL DATA AND
RATIOS:
Net Assets, End of Period
(000s omitted)........... $ 170,008 $ 157,568 $ 92,033 $ 29,973
Ratios to Average Net
Assets:
Net Investment Loss... (0.39)% (0.42)% (0.38)%* (0.32)%
Expenses.............. 1.00% 1.00% 1.00%* 1.00%
Decrease Reflected in
Above Expense
Ratio Due to
Absorption of
Expenses by
Bankers Trust.... 0.20% 0.24% 0.33%* 0.46%
Portfolio Turnover Rate.... 188% 271%++ 125%++ 157%++
Average Commission Per
Share**.................... $ 0.0341 $ 0.0554++

<CAPTION>
FOR THE PERIOD
OF OPERATIONS) TO
DECEMBER 31,
1993
<S><C>
.............................................
PER SHARE OPERATING
PERFORMANCE:
NET ASSET VALUE, BEGINNING
OF PERIOD.................. $ 10.00
.............................................
Income from Investment
Operations
Net Investment Loss...... (0.00)
Net Realized and
Unrealized Gain (Loss)
on Investment
Transactions.......... (0.20)
.............................................
Total Income (Loss) from
Investment Operations...... (0.20)
.............................................
Distributions to
Shareholders
Net Realized Gain from
Investment Transactions.. --
.............................................
NET ASSET VALUE, END OF
PERIOD..................... $ 9.80
.............................................
Total Investment Return.... (8.81)%*
SUPPLEMENTAL DATA AND
RATIOS:
Net Assets, End of Period
(000s omitted)........... $ 19,465
Ratios to Average Net
Assets:
Net Investment Loss... (0.11)%*
Expenses.............. 1.00%*
Decrease Reflected in
Above Expense
Ratio Due to
Absorption of
Expenses by
Bankers Trust.... 0.60%*
Portfolio Turnover Rate.... 137%++
Average Commission Per
Share**....................
</TABLE>

- --------------------------------------------------------------------------------
+ Board of Trustees approved the change of the BT Investment Equity
Appreciation Fund's year end from December 31 to September 30.
++ Amounts were previously included in the Capital Appreciation Portfolio
Financial Highlights.
* Annualized.
** For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for security trades upon
which commissions are charged.

Further information about the Fund's performance is contained in the Fund's
Annual Reports dated September 30, 1997, which can be obtained free of charge.

<PAGE>

- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------

The Fund's investment objective is capital growth over the long-term through
investment primarily in companies with a strong profit growth orientation; the
production of any current income is secondary to this objective. There can be no
assurances that the investment objective of the Fund will be achieved. The
investment objective of the Fund is not a fundamental policy and may be changed
upon notice to but without the approval of the Fund's shareholders.

The Fund invests primarily in common stocks of U.S. companies expected to
produce strong and sustainable profit growth, and to a lesser extent,
growth-oriented international corporations. Overall, the Adviser employs a
flexible investment program in pursuit of the Fund's investment objective. The
Fund is not restricted to investments in specific market sectors. The Fund may
invest in any market sector and in companies of any size and may take advantage
of any investment opportunity with attractive long-term prospects. The Adviser
takes advantage of its market access and the research available to it to select
investments in promising growth companies that are involved in new technologies,
new products, foreign markets and special developments, such as research
discoveries, acquisitions, recapitalizations, liquidations or management
changes, and companies whose stock may be undervalued by the market. These
situations are only illustrative of the types of investment the Fund may make.
The Fund is free to invest in any common stock which in the Adviser's judgment
provides above average potential for long-term growth of capital and income.

The Fund will generally invest a majority of its assets in securities of
medium-sized companies, which the Fund believes includes the highest
concentration of companies that meet the profit growth-oriented objectives of
the Fund. This portion of the Fund's portfolio will contain equity securities of
companies which fall within the dollar market capitalization range of the
companies in the S&P Mid-Cap 400 Index. The Fund as a whole will seek to
maintain a dollar-weighted average company market capitalization approximately
in the middle of the market capitalization of the largest and the smallest
companies contained in the S&P Mid-Cap 400 Index. The Fund may also invest in
securities of companies having various levels of market capitalization, both
larger and smaller than the companies contained in the S&P Mid-Cap 400 Index.
Investments will be in companies in various industries. Industry and company
fundamentals along with key investment themes and various quantitative screens
will be used in the investment process.

Criteria for selection of individual securities include the issuer's competitive
environment and position, prospects for growth, managerial strength, earnings
momentum and quality, underlying asset value, relative market value, and overall
marketability. The Fund will follow a disciplined selling process to lessen
market risks.

The Fund may invest up to 25% of its assets in securities of foreign issuers.
For further information on foreign investments and related hedging techniques,
see "Risk Factors: Matching the Fund to Your Investment Needs," "Additional
Investment Techniques and Risks" herein and the SAI.

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, without limit, 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

<PAGE>

- --------------------------------------------------------------------------------

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.

OTHER INVESTMENTS, INVESTMENT RISKS AND TECHNIQUES

The Fund may also utilize the following investments and investment techniques
and practices: Rule 144A securities, when-issued and delayed delivery
securities, securities lending, repurchase agreements, foreign investments,
options on stocks, options on stock indices, futures contracts on stock indices,
options on futures contracts, foreign currency exchange transaction and options
on foreign currencies. See "Additional Investment Techniques and Risks" for
further information.

ADDITIONAL INVESTMENT LIMITATIONS

As a "diversified" fund, with respect to 75% of the Fund's total assets, no more
than 5% of the total assets of the Fund may be invested in the securities of any
one issuer (excluding cash and cash-equivalents, U.S. government securities and
the securities of other investment companies) and the Fund will not own more
than 10% of the voting securities of any issuer. The Fund will not invest more
than 25% of its assets in the securities of issuers in any one industry. These
are fundamental investment policies of the Fund which may not be changed without
shareholder approval. No more than 15% of the Fund's net assets may be invested
in illiquid or not readily marketable securities (including repurchase
agreements and time deposits with remaining maturities of more than seven
calendar days). Additional investment policies of the Fund are contained in the
SAI.

See "Investment Objective, Policies and Restrictions" in the SAI for a
description of the additional fundamental policies of the Fund that cannot be
changed without approval by a "vote of a majority of the outstanding voting
securities" (as defined in the Investment Company Act of 1940 (the "1940 Act")
of the Fund.

- --------------------------------------------------------------------------------
RISK FACTORS: MATCHING THE FUND
TO YOUR INVESTMENT NEEDS
- --------------------------------------------------------------------------------

By itself, the Fund does not constitute a balanced investment plan; the Fund
seeks capital growth over the long-term, with the production of any current
income being secondary to this primary investment objective, through investment
primarily in the equity securities of companies expected to produce strong and
sustainable profit growth and, to a limited extent, similarly oriented
international corporations.

In view of the long-term capital growth objective of the Fund and the Fund's
ability to invest in smaller- and medium-sized companies, the size range in
which many of the best profit growth-oriented companies are found, the risks of
investment in the Fund may be greater than

<PAGE>

- --------------------------------------------------------------------------------

the risks presented by the general equity markets, and, since the Fund may also
invest in preferred stock and convertible bonds, changes in domestic and foreign
interest rates may also affect the value of the Fund's investments, and rising
interest rates can be expected to reduce the Shares' value. A description of a
number of investments and investment techniques available to the Fund, including
foreign investments and the use of options and futures, and certain risks
associated with these investments and techniques is included under "Additional
Investment Techniques and Risks" herein. The Shares' yield and total return
fluctuate, and your investment may be worth more or less than your original cost
when you redeem your Shares.

RISKS OF INVESTING IN 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 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.

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. For the fiscal years ended September 30, 1997, and 1996 the Fund's
portfolio turnover rates were 188 and 271%, respectively.

ADDITIONAL INVESTMENT TECHNIQUES AND RISKS

RULE 144A SECURITIES. The Fund may purchase securities in the United States that
are not registered for sale under Federal securities laws but which can be
resold to institutions under the Securities and Exchange Commission's ("SEC")
Rule 144A. Provided that a dealer or institutional trading market in such
securities exists, these restricted securities are treated as exempt from the
Fund's 15% limit on illiquid securities. Under the supervision of the Board of
Trustees of the Trust, Bankers Trust determines the liquidity of restricted
securities and, through reports from Bankers Trust, the Board will monitor
trading activity in restricted securities. Because Rule 144A is relatively new,
it is not possible to predict how these markets will develop. If institutional
trading in restricted securities were to decline, the liquidity of the Fund
could be adversely affected.

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
fluctuation during this period and no income accrues to the Fund until
settlement takes place. The Fund maintains with the custodian a segregated
account containing high grade liquid securities in an amount at least equal to
these commitments. When entering into a when-issued or delayed delivery
transaction, the Fund will rely on the other party to consummate the
transaction; if the other party fails to do so, the Fund may be disadvantaged.

SECURITIES LENDING. The Fund is permitted to lend up to 30% of the total value
of its securities. These loans must be secured continuously by cash or
equivalent collateral or by a letter of credit at least equal to the market
value of the securities loaned plus accrued income. By lending its securities,
the Fund can increase its income by continuing to receive income on the loaned
securities as

<PAGE>

- --------------------------------------------------------------------------------

well as by the opportunity to receive interest on the collateral. During the
term of the loan, the Fund continues to bear the risk of fluctuations in the
price of the loaned securities. In lending securities to brokers, dealers and
other organizations, the Fund is subject to risk which, like those associated
with other extensions of credit, include delays in recovery and possible loss of
rights in the collateral should the borrower fail financially.

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.

ADRS, GDRS, EDRS. The Fund may invest in securities of foreign issuers directly
or in the form of American Depositary Receipts ("ADRs", Global Depositary
Receipts ("GDRs", European Depositary Receipts ("EDRs" or other similar
securities representing securities of foreign issuers. These securities may not
necessarily be denominated in the same currency as the securities they
represent. Designed for use in U.S., international and European securities
markets, respectively, ADRs, GDRs and EDRs are alternatives 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.

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
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. See the SAI for more information with respect
to the Fund's investing in other investment companies.

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. 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 may be used for traditional hedging purposes to
attempt to protect a fund from exposure to changing interest rates, securities
prices or currency exchange rates and for cash management purposes as a low cost
method of gaining exposure to a particular securities market without investing
directly in those securities. The Fund may invest in derivatives for hedging and
cash management purposes, but also as a substitute for investment directly in
the corresponding securities if the Adviser believes they offer the most
economic means of improving the risk/reward profile of the Fund. 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 Fund will "cover"
its positions in derivatives, pursuant to interpretive positions of the
Securities and Exchange Commission, which serves to reduce the resulting
leverage. Derivatives will not be used to increase the Fund's overall portfolio
risk above the level that could be achieved, within the Fund's investment
policies, using only traditional investment securities or to acquire exposure to
changes in the value of assets or indices that by themselves would not be
purchased for the Fund. The use of derivatives for non-hedging purposes may be
considered speculative. A description of the derivatives that the Fund may use
and some of their associated risks is found below.

OPTIONS ON STOCKS. 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. A covered call
option, which is a call option with respect to which the Fund owns the
underlying stock, sold by the Fund exposes the Fund during the term of the
option to possible loss of opportunity to realize

<PAGE>

- --------------------------------------------------------------------------------

appreciation in the market price of the underlying stock or to possible
continued holding of a stock which might otherwise have been sold to protect
against depreciation in the market price of the stock. A covered put option sold
by the Fund exposes the Fund during the term of the option to a decline in price
of the underlying stock. A put option sold by the Fund is covered when, among
other things, cash or liquid securities are placed in a segregated account to
fulfill the obligations undertaken.

To close out a position when writing covered options, the Fund may make a
"closing purchase transaction," which involves purchasing an option on the same
stock with the same exercise price and expiration date as the option which it
has previously written on the stock. 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.

The Fund intends to treat over-the-counter options ("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" in
the Statement of Additional Information.

OPTIONS ON STOCK INDICES. The Fund may purchase and write put and call options
on stock indices listed on stock exchanges. A stock index fluctuates with
changes in the market values of the stocks included in the index.

Options on stock indices are generally similar to options on stock except that
the delivery requirements are different. Instead of giving the right to take or
make delivery of stock at a specified price, an option on a stock index gives
the holder the right to receive a cash "exercise settlement amount" equal to (a)
the amount, if any, by which the fixed exercise price of the option exceeds (in
the case of a put) or is less than (in the case of a call) the closing value of
the underlying index on the date of exercise, multiplied by (b) a fixed "index
multiplier." Receipt of this cash amount will depend upon the closing level of
the stock index upon which the option is based being greater than, in the case
of a call, or less than, in the case of a put, the exercise price of the option.

The amount of cash received will be equal to such difference between the closing
price of the index and the exercise price of the option expressed in dollars
times a specified multiple. The writer of the option is obligated, in return for
the premium received, to make delivery of this amount. The writer may offset its
position in stock index options prior to expiration by entering into a closing
transaction on an exchange or the option may expire unexercised.

Because the value of an index option depends upon movements in the level of the
index rather than the price of a particular stock, whether the Fund will realize
a gain or loss from the purchase or writing of options on an index depends upon
movements in the level of stock prices in the stock market generally or, in the
case of certain indices, in an industry or market segment, rather than movements
in the price of a particular stock. Accordingly, successful use by the Fund of
options on stock indices will be subject to Bankers Trust's ability to predict
correctly movements in the direction of the stock market generally or of a
particular industry. This requires different skills and techniques than
predicting changes in the price of individual stocks.

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 transactions are successful, the futures positions taken for
the Fund will rise in value by an 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.

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

<PAGE>

- --------------------------------------------------------------------------------

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 FUTURES CONTRACTS. The Fund may invest in options on such Futures
Contracts for similar purposes.

FOREIGN 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 foreign 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.

A forward foreign 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 foreign 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 foreign 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 high grade liquid assets in an amount at least equal to its
obligations under each forward foreign currency exchange contract. Neither spot
transactions nor forward foreign 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.

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 a 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 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.

OPTIONS ON FOREIGN CURRENCIES. The Fund may write covered put and call options
and purchase put and call options on foreign currencies for the purpose of
protecting against declines in the dollar value of portfolio securities and
against increases in the dollar cost of securities to be acquired. The Fund may
use options on foreign currency to cross-hedge, which involves writing or
purchasing options on one currency to hedge against changes in exchange rates
for a different, but related currency. As with other types of options, however,
the writing of an option on a foreign currency will constitute only a partial
hedge up to the amount of the premium received, and the Fund could be required
to purchase or sell a foreign currency at disadvantageous exchange rates,
thereby incurring losses. The purchase of an option on foreign currency may be
used to hedge against fluctuations in exchange rates although, in the event of
exchange rate movements adverse to the Fund's position, it may forfeit the
entire amount of the premium plus related transaction costs. In addition, the
Fund may purchase call options on a foreign currency when the

<PAGE>

- --------------------------------------------------------------------------------

Adviser anticipates that the currency will appreciate in value.

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.

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 segregating with the
Fund's Custodian liquid securities in an amount at all times equal to or
exceeding the Fund's commitment with respect to these instruments or contracts.

- --------------------------------------------------------------------------------
NET ASSET VALUE
- --------------------------------------------------------------------------------

The net asset value ("NAV") per share of the Shares is calculated on each day on
which the New York Stock Exchange, Inc. (the "NYSE") is open (each such day
being a "Valuation Day"). The NYSE is currently open on each day, Monday through
Friday, except: (a) January 1st, Martin Luther King Day (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 last Thursday in November) and December 25th;
and (b) the preceding Friday or the subsequent Monday when one of the
calendar-determined holidays falls on a Saturday or Sunday, respectively.

The NAV per Share is calculated once on each Valuation Day as of the close of
regular trading on the NYSE (the "Valuation Time"), which is currently 4:00
p.m., Eastern time or 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 total assets, less all liabilities allocable to the Shares, by the total
number of Shares outstanding. 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 Trust'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 NAV is 0.005 ( 1/2 of 1%) or
less or shareholder transactions are otherwise insubstantially affected, further
action is not required.

<PAGE>

- --------------------------------------------------------------------------------
PURCHASE AND REDEMPTION OF SHARES
- --------------------------------------------------------------------------------

HOW TO BUY 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. See "Net
Asset Value" herein. Shares of the Fund may be available through Investment
Professionals, such as broker/dealers and investment advisers (including Service
Agents). Purchase orders for Shares of the Fund (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 Bankers Trust 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 Trust 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 Net Asset Value 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 of each class to the Transfer Agent before 4:00 p.m. Eastern time.

MINIMUM INVESTMENTS

TO OPEN AN ACCOUNT $2,500
For retirement accounts 500
Through automatic investment plans 1,000

TO ADD TO AN ACCOUNT $ 250
For retirement accounts 100
Through automatic investment plan 100

MINIMUM BALANCE $1,000
For retirement accounts None

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 ALREADY HAVE MONEY INVESTED IN A FUND IN THE BT FAMILY OF FUNDS, you can:

(Bullet) Mail an account application with a check,

(Bullet) Wire money into your account,

(Bullet) Open an account by exchanging from another fund in the BT Family of
Funds, or

(Bullet) Contact your Service Agent or Investment Professional.

<PAGE>

- --------------------------------------------------------------------------------

ADDITIONAL INFORMATION ABOUT BUYING SHARES

<TABLE>
<CAPTION>
TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT <S><C> BY WIRE Call the BT
Service Center at 1-800-730-1313 to Call your Investment Professional or wire
receive wire instructions for account additional investment to:
establishment.

ROUTING NO.: 021001033
ATTN: Bankers Trust/IFTC Deposit
DDA NO.: 00-226-296
FBO: (Account name)
(Account number)
CREDIT: BT Investment Equity Appreciation
Fund -- 477

Specify the
complete name of
the Fund of your
choice, and
include your
account number
and your name.

BY PHONE Contact your Service Agent, Investment Contact your Service
Agent, Investment Professional, or call BT's Service Center at
Professional, or call BT's Service Center at 1-800-730-1313. If you
are an existing shareholder, 1-800-730-1313. If you are an existing
shareholder, you may exchange from another BT account with the you
may exchange from another BT account with the same registration,
including, name, address, and same registration, including, name,
address, and taxpayer ID number. taxpayer ID number.

BY MAIL Complete and sign the account application. Make Make your check
payable to the complete name of the your check payable to the
complete name of the Fund Fund of your choice. Indicate your Fund
account of your choice. Mail to the appropriate address number on
your check and mail to the address indicated on the application.
printed on your account statement.
</TABLE>

HOW TO SELL 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 of the Fund 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 Shareholder's 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.

<PAGE>

- --------------------------------------------------------------------------------

Redemption orders are processed without charge by the Trust. A Service Agent may
on at least 30 days' notice involuntarily redeem a shareholder's account with
the Fund having a balance below the minimum, but not if an account is below the
minimum due to a change in market value. See "Minimum Investments" above for
minimum balance amounts.

IF YOU ARE SELLING SOME BUT NOT ALL OF YOUR NON-RETIREMENT ACCOUNT SHARES, leave
at least $1,000 worth of shares in the account to keep it open.

TO SELL SHARES BY BANK WIRE you will need to sign up for these services in
advance when completing your account application.

(Bullet) Your account registration has changed within the last 30 days,

(Bullet) The check is being mailed to a different address than the one on your
account (record address),

(Bullet) The check is being made payable to someone other than the account
owner,

(Bullet) The redemption proceeds are being transferred to a BT account with a
different registration, or

(Bullet) You wish to have redemption proceeds wired to a non-predesignated bank
account.

A signature guarantee is also required if you change the pre-designated bank
information for receiving redemption proceeds on your account.

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 a Business or Organization account, at least one person authorized by
corporate resolution to act on the account must sign the letter.

INVESTOR SERVICES

BT Pyramid Mutual Funds provide a variety of services to help you manage your
account.

INFORMATION SERVICES

STATEMENTS AND REPORTS that your Investment Professional or the Transfer Agent
may send to you include the following:

(Bullet) Confirmation statements (after every transaction that affects your
account balance, including distributions or your account registration)

(Bullet) Account statements (monthly)

(Bullet) Financial reports (every six months)

To reduce expenses, only one copy of most financial reports will be mailed, even
if you have more than one account in the Fund. Call your Investment Professional

<PAGE>

- --------------------------------------------------------------------------------

or the BT Service Center at 1-800-730-3131 if you need additional copies of
financial reports.

EXCHANGE PRIVILEGE

Shareholders may exchange their Shares for shares of certain other funds in the
BT Family of Funds registered in their state. The Fund reserves the right to
terminate or modify the exchange privilege in the future. To make an exchange,
follow the procedures indicated in "How to Buy Shares" and "How to Sell Shares"
herein. Before making an exchange, please note the following:

(Bullet) Call your Service Agent for information and a prospectus. Read the
prospectus for relevant information.

(Bullet) Your new account will have the identical account registration including
same name, address and taxpayer identification number as your existing
account(s).

Note that exchanges out of a Fund may be limited to four per calendar year and
that they may have tax consequences for you.

SYSTEMATIC PROGRAMS

TO MOVE MONEY FROM YOUR BANK ACCOUNT TO BT PYRAMID MUTUAL FUNDS

<TABLE>
<CAPTION>
MINIMUM MINIMUM
INITIAL SUBSEQUENT FREQUENCY SETTING UP OR CHANGING
<S><C>
$1,000 $100 Monthly, bimonthly, quarterly or semi- For a new account, complete the appropriate
annually section on the application.
For
existing
accounts,
call your
Investment
Professional
for an
application.
To change
the amount
or
frequency
of your
investment,
contact
your
Investment
Professional
directly or
call
1-800-730-1313.
Call at
least 10
business
days prior
to your
next
scheduled
investment
date.

SYSTEMATIC WITHDRAWAL PROGRAM lets you set up periodic redemptions from your
account.

MINIMUM FREQUENCY SETTING UP OR CHANGING

$100 Monthly, quarterly, semi-annually or annually To establish, call your Investment Professional or
call 1-800-730-1313 after your account is open. The
accounts from which the withdrawals will be
processed must have a minimum balance of $10,000,
other than retirement accounts subject to required
minimum distributions.
</TABLE>

<PAGE>

- --------------------------------------------------------------------------------

TAX-SAVING RETIREMENT PLANS

(Bullet) INDIVIDUAL RETIREMENT ACCOUNTS (IRAS): personal savings plans that
offer tax advantages for individuals to set aside money for retirement
and allow new contributions of $2,000 per tax year.

(Bullet) ROLLOVER IRAS: tax-deferred retirement accounts that retain the special
tax advantages of lump sum distributions from qualified retirement
plans and transferred IRA accounts.

DISTRIBUTIONS. The Fund distributes substantially all of its net investment
income and capital gains to shareholders each year. Income dividends are
distributed quarterly. In addition, the Fund will distribute net capital gains,
if any, at least annually and potentially semi-annually, if required, to remain
in compliance with the applicable tax regulations. Unless a shareholder
instructs the Trust to pay such dividends and distributions in cash, they will
be automatically reinvested in additional Shares.

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 distributions are taxable when they are paid, whether
you take them in cash or reinvest them in additional Shares. Distributions
declared in 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 in the past year.

CAPITAL GAINS. 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.

"BUYING A DIVIDEND." On the ex-date for a distribution from income and/or
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 TAX INFORMATION. In addition to federal taxes, you may be subject to state
or local taxes on your investment, depending on the laws in your area. Income
received by the Fund from sources within foreign countries may be subject to
withholding and other taxes imposed by such countries. You should consult with
your own tax adviser concerning the application of federal, state and local
taxes to your distributions from the Fund.

<PAGE>

- --------------------------------------------------------------------------------
PERFORMANCE INFORMATION AND REPORTS
- --------------------------------------------------------------------------------

The Shares' performance may be used from time to time in advertisements,
shareholder reports or other communications to shareholders or prospective
shareholders. 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 General Equity Averages, the Lipper Mid Cap
Average, the Lipper Growth Fund Average or other various unmanaged indices or
results of other mutual funds or investment or savings vehicles. The Shares'
investment results as used in such communications will be calculated on a yield
or total return basis in the manner set forth herein. From time to time, fund
rankings may be quoted from various sources, such as Lipper Analytical Services,
Inc., Value Line and Morningstar, Inc.

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 gain 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.

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. In addition, during certain periods for which
total return or yield quotations may be provided, Bankers Trust, as Adviser,
Service Agent or Administrator, may have voluntarily agreed to waive portions of
their fees on a month-to-month basis. Such waivers will have the effect of
increasing the Shares' net income (and therefore its total rate of return or
yield) during the period such waivers are in effect.

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.

- --------------------------------------------------------------------------------
MANAGEMENT OF THE TRUST
- --------------------------------------------------------------------------------

BOARD OF TRUSTEES

The affairs of the Trust are managed under the supervision of its Board of
Trustees. By virtue of the responsibilities assumed by Bankers Trust, as the
Administrator of the Trust, the Trust does not require employees other than its
officers. None of the Trust's officers devote full time to the affairs of the
Trust. For more information with respect to the Trustees of the Trust, see
"Management of the Trust" in the SAI.

INVESTMENT ADVISER

The Trust has retained the services of Bankers Trust, as Adviser. Mr. Anthony
Takazawa, CFA, Vice President of Bankers Trust, has senior portfolio management
responsibilities for the Fund. Mr. Takazawa joined Bankers Trust in 1996 and has
managed the Fund's assets since September, 1996. Mr. Takazawa has nine years of
investment and financial analysis experience. Previously, Mr. Takazawa worked at
Phoenix Mutual Life Insurance Company as an investment analyst, portfolio
manager and director of research.

<PAGE>

- --------------------------------------------------------------------------------

BANKERS TRUST COMPANY AND ITS AFFILIATES

Bankers Trust, 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 December 31, 1997, Bankers Trust New York Corporation was the
seventh largest bank holding company in the United States with total assets of
over $100 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. Investment management is a core business of Bankers Trust, built on a
tradition of excellence from its roots as a trust bank founded in 1903. 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.

Bankers Trust's officers have had extensive experience in managing investment
portfolios having objectives similar to those of the Fund.

Bankers Trust, subject to the supervision and direction of the Board of Trustees
of the Trust, manages the Fund, in accordance with the Fund's investment
objective and stated investment policies, makes investment decisions for the
Fund, places orders to purchase and sell securities and other financial
instruments on behalf of the Fund and employs professional investment managers
and securities analysts who provide research services to the Fund. Bankers Trust
may utilize the expertise of any of its worldwide subsidiaries and affiliates to
assist it in its role as investment adviser. All orders for investment
transactions on behalf of the Fund are placed by Bankers Trust with
broker-dealers and other financial intermediaries that it selects, including
those affiliated with Bankers Trust. A Bankers Trust affiliate will be used in
connection with a purchase or sale of an investment for the Fund only if Bankers
Trust believes that the affiliate's charge for the transaction does not exceed
usual and customary levels. The Fund will not invest in obligations for which
Bankers Trust or any of its affiliates is the ultimate obligor or accepting
bank. The Fund may, however, invest in the obligations of correspondents or
customers of Bankers Trust.

Under its Investment Advisory Agreement with the Trust, Bankers Trust receives a
fee from the Fund computed daily and paid monthly at the annual rate of 0.65% of
the average daily net assets of the Fund. Under certain circumstances Bankers
Trust, the Fund's Adviser, has agreed to pay fees to certain securities brokers,
dealers and other entities that facilitate the sale of Fund shares, and in
connection therewith provide administrative, shareholder or distribution related
services to the Fund or its shareholders. Fees paid to entities that administer
mutual fund "supermarkets" may be higher than fees paid for other types of
services.

Bankers Trust has been advised by its counsel that, in counsel's opinion,
Bankers Trust currently may perform the services for the Trust described in this
Prospectus and the SAI without violation of the Glass-Steagall Act or other
applicable banking laws or regulations.

ADMINISTRATOR

Under its Administration and Services Agreement with the Trust, Bankers Trust
calculates the NAV 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 at the annual rate of 0.50% of the
average daily net assets of the Fund. For the fiscal years ended September 30,
1997, after partial waivers, Bankers Trust received administrative service fees
of 0.25% of the average daily net assets of the Fund.

Under the Administration and Services Agreement, Bankers Trust may delegate one
or more of its responsibilities to others, including Edgewood and its
affiliates, at Bankers Trust's expense. For more information, see the SAI.

<PAGE>

- --------------------------------------------------------------------------------

DISTRIBUTOR

Edgewood Services, Inc. is the principal distributor for Shares of the Fund. In
addition, Edgewood and its affiliates provide the Trust with office facilities
and currently provide administration and distribution services for other
registered investment companies. The principal business address of Edgewood and
its affiliates is Clearing Operations, P.O. Box 897, Pittsburgh, Pennsylvania
15230-0897.

SERVICE AGENT

All shareholders must be represented by a Service Agent. Bankers Trust 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
and other financial intermediaries, will be paid by Bankers Trust 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 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 Bankers Trust, 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 acts as Custodian of the assets of the Trust and serves as the
Transfer Agent for the Trust under the Administration and Services Agreement
with 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 offers shares of 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
interest 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. The Board of Trustees may establish additional series or add
additional classes of shares to the Fund or other series of the Trust in the
future. No series of shares has any preference over any other series.

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. When
matters are submitted for shareholder vote, shareholders of a 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 January 8, 1998, Northern Telecom, Jersey City, New Jersey, owned
approximately 44% 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 shareholders.

<PAGE>

(THIS PAGE INTENTIONALLY LEFT BLANK)

<PAGE>

(THIS PAGE INTENTIONALLY LEFT BLANK)

<PAGE>

(THIS PAGE INTENTIONALLY LEFT BLANK)

<PAGE>

BT PYRAMID MUTUAL FUNDS
BT INVESTMENT EQUITY APPRECIATION FUND
INVESTMENT CLASS

INVESTMENT ADVISER AND ADMINISTRATOR
BANKERS TRUST COMPANY
130 Liberty Street
(One Bankers Trust Plaza)
New York, NY 10006

DISTRIBUTOR
EDGEWOOD SERVICES, INC.
Clearing Operations
P.O. Box 897
Pittsburgh, PA 15230-0897

CUSTODIAN AND TRANSFER AGENT BANKERS TRUST COMPANY 130 Liberty Street (One
Bankers Trust Plaza)
New York, NY 10006

INDEPENDENT ACCOUNTANTS
COOPERS & LYBRAND L.L.P.
1100 Main Street, Suite 900
Kansas City, MO 64105

COUNSEL
WILLKIE FARR & GALLAGHER
153 East 53rd Street
New York, NY 10022

....................................

No person has been authorized to give any information or to make any
representations with respect to the Fund or the Shares other than those
contained in the Trust's Prospectuses, its Statements of Additional Information
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. This Prospectus
does not constitute an offer in any state in which, or to any person to whom,
such offer may not lawfully be made.

....................................

Cusip #055922751
STA 477300 (1/98)

STATEMENT OF
ADDITIONAL INFORMATION
JANUARY 31, 1998

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 capital growth over the long-term through investment
primarily in companies with a strong profit growth orientation. Current income
is a secondary goal.

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
Edgewood Services, Inc. ("Edgewood"), 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 31,
1998. This SAI is intended to provide additional information regarding the
activities and operations of the Trust and should be read in conjunction with
either 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
Service Agent. Capitalized terms not otherwise defined in this SAI have the
meanings accorded to them in the Fund's Prospectuses.

INVESTMENT ADVISER AND ADMINISTRATOR

BANKERS TRUST COMPANY

DISTRIBUTOR

EDGEWOOD SERVICES, INC.

CLEARING OPERATIONS PITTSBURGH, PENNSYLVANIA 15230-0897 1-800-730-1313
P.O. BOX 897

<PAGE>

TABLE OF CONTENTS

INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS...................1

PERFORMANCE INFORMATION............................................15

VALUATION OF SECURITIES; REDEMPTIONS AND PURCHASES IN KIND.........17

MANAGEMENT OF THE TRUST............................................18

ORGANIZATION OF THE TRUST..........................................22

TAXATION...........................................................23

FINANCIAL STATEMENTS...............................................23

APPENDIX...........................................................24

<PAGE>

INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS

INVESTMENT OBJECTIVES

The investment objective of the Fund is described in the Fund's Prospectus.
There can, of course, be no assurance that the Fund will achieve its investment
objective.

INVESTMENT POLICIES

The following is a discussion of the various investments of and techniques
employed by the Fund:

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.

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 the Appendix to this SAI.

SHORT-TERM INSTRUMENTS. 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 which 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 S&P or Aa or higher by
Moody's 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 banker's 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 S&P or Aa or higher by Moody's or
outstanding commercial paper or bank obligations rated A-1 by S&P or Prime-1 by
Moody's; 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.

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 "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.

The Adviser will monitor the liquidity of Rule 144A securities in the Fund's
holdings under the supervision of the Trust's Board of Trustees. In reaching
liquidity decisions, the Adviser will consider, among other things, the
following factors: (i) the frequency of trades and quotes for the security; (ii)
the number of dealers and other potential purchasers or sellers of the security;
(iii) dealer undertakings to make a market in the security; and (iv) 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).

LENDING OF PORTFOLIO SECURITIES. The Fund has the authority to lend portfolio
securities to brokers, dealers and other financial organizations. The Fund will
not lend securities to Bankers Trust, Edgewood or their affiliates. By lending
its securities, the Fund can increase its income 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.
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.

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 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.

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,
cash equivalents or high quality liquid debt securities 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.

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 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 market value
of the total assets of the Fund.

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, U.S. government securities and
other high quality liquid debt securities 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
custodian, cash or U.S. government securities or other high quality liquid debt
securities in an amount not less than the value of the underlying foreign
currency in U.S. dollars marked to market daily.

ADDITIONAL RISKS OF 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.

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.

OPTIONS ON SECURITIES. The Fund may 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.

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 underlying security above the
exercise price.

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.

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 from 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.

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.

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.

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.

The Fund has adopted certain other nonfundamental policies concerning option
transactions which are discussed below. The Fund's activities in options may
also be restricted by the requirements of the Internal Revenue Code of 1986, as
amended (the "Code"), for qualification as a regulated investment company.

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 whom the Fund enters into such options transactions under the general
supervision of the Trust's Board of Trustees.

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."

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.

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.

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.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. 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 foreign 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.

<PAGE>

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 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.

While these contracts are not presently regulated by the CFTC, the CFTC may in
the future assert authority to regulate forward contracts. In such event, the
Fund's ability to utilize forward contracts in the manner set forth in the
Prospectus may be restricted. Forward contracts may reduce the potential gain
from a positive change in the relationship between the U.S. dollar and foreign
currencies. Unanticipated changes in currency prices may result in poorer
overall performance for the Fund than if it had not entered into such contracts.
The use of foreign currency forward contracts may not eliminate fluctuations in
the underlying U.S. dollar equivalent value of the prices or rates of return on
the Fund's foreign currency denominated portfolio securities and the use of such
techniques will subject the Fund to certain risks.

The matching of the increase in value of a forward contract and the decline in
the U.S. dollar equivalent value of the foreign currency denominated asset that
is the subject of the hedge generally will not be precise. In addition, the Fund
may not always be able to enter into foreign currency forward contracts at
attractive prices and this will limit the Fund's ability to use such contract to
hedge or cross-hedge its assets. Also, with regard to the Fund's use of
cross-hedges, there can be no assurance that historical correlations between the
movement of certain foreign currencies relative to the U.S. dollar will
continue. Thus, at any time poor correlation may exist between movements in the
exchange rates of the foreign currencies underlying the Fund's cross-hedges and
the movements in the exchange rates of the foreign currencies in which the
Fund's assets that are the subject of such cross-hedges are denominated.

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, Bankers Trust 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 Bankers Trust will consider
such an event in its determination of whether the Fund should continue to hold
the obligation. A description of the ratings used herein and in the Prospectus
is set forth in the Appendix to this SAI.

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" under the Investment Company Act of 1940, as
amended (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.

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 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.

<PAGE>

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;

(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
custodian consisting of cash or short-term U.S. government
securities 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 illiquid securities) 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 Rules of Fair Practice 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 Bankers Trust as a factor
in the selection of broker-dealers to execute portfolio transactions. Bankers
Trust will make such allocations if commissions are comparable to those charged
by nonaffiliated, qualified broker-dealers for similar services.

Higher commissions may be paid to firms that provide research services to the
extent permitted by law. Bankers Trust may use this research information in
managing the Fund's assets, as well as the assets of other clients.

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, 1997, the Fund paid brokerage
commissions in the amount of $174,242. For the fiscal year ended September 30,
1996, and the period from January 1, 1995 to September 30, 1995, the Portfolio
paid brokerage commissions in the amounts of $648,897 and $247,868,
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. These performance
figures are calculated in the following manner:

TOTAL RETURN: 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.

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, 1997, and for the period from October 12,
1993, (commencement of operations), through September 30, 1997, were 14.64% and
18.48%, respectively.

PERFORMANCE RESULTS: 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.