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. _22_ ...................... X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 23 ..................................... X
----- ----
BT PYRAMID MUTUAL FUNDS
(Exact Name of Registrant as Specified in Charter)
5800 Corporate Drive, Pittsburgh, Pennsylvania 15237-7010
(Address of Principal Executive Offices)
(412) 288-1900
(Registrant's Telephone Number)
Jay S. Neuman, Esquire Copies to: Burton M. Leibert, Esq.
Federated Investors Tower Willkie Farr & Gallagher
Pittsburgh, Pennsylvania 15222-3779 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)
[ ] immediately upon filing pursuant to paragraph (b) [X] on November 30, 1998
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.
BT PreservationPlus Portfolio has 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 PreservationPlus Fund,
which is comprised of the following:
PART A. INFORMATION REQUIRED IN A PROSPECTUS.
PROSPECTUS HEADINg
(Rule 404(c) Cross Reference)
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 Want To 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; Appendix.
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 30, 1998
pursuant to Rule 411 under the
Securities Act of 1933
(File Nos. 33-45973 and 811-6576).
STATEMENT OF
ADDITIONAL INFORMATION
NOVEMBER 30, 1998
BT PYRAMID MUTUAL FUNDS:
BT PRESERVATIONPLUS FUND
INVESTMENT CLASS
SERVICE CLASS
INSTITUTIONAL CLASS
INSTITUTIONAL SERVICE CLASS
BT PreservationPlus Fund (the "Fund") is a separate series of BT Pyramid Mutual
Funds (the "Trust"), an open-end, management investment company (mutual fund).
The Investment Class, Service Class, Institutional Class, and Institutional
Service Class of shares (individually and collectively referred to as "Shares"
as the context may require) of the Fund are described herein.
As described in the Shares' respective Prospectuses, the Fund seeks to achieve
its investment objective by investing all its net investable assets in BT
PreservationPlus Portfolio (the "Portfolio"), a diversified open-end management
investment company having the same investment objective as the Fund. The
Portfolio is a separate subtrust of BT Investment Portfolios, a New York master
trust fund (the "Portfolio Trust").
Because the investment characteristics of the Fund correspond directly to those
of the Portfolio (in which the Fund invests all of its assets), the following is
a discussion of the various investments of and techniques employed by the
Portfolio. The Fund is designed as an alternative investment to guaranteed
investment contracts ("GICs"), collective GIC funds, bank investment contracts
("BICS"), and so-called "synthetic GICs."
Shares are sold by ICC Distributors, Inc., the Trust's distributor (the
"Distributor"), to participant-directed employee benefit plans meeting specified
criteria ("Plans"). Shares are offered to Plans either directly or through
vehicles such as bank collective funds or insurance company separate accounts
consisting solely of such Plans (collectively, "Plan Pools"). Bankers Trust
Company ("Bankers Trust") is the Portfolio's investment adviser ("Adviser").
The Fund's Prospectuses (individually and collectively referred to as the
"Prospectus" as the context may require) are dated November 30, 1998. The
Prospectus provides the basic information investors should know before
investing. This Statement of Additional Information ("SAI"), which is not a
prospectus, is intended to provide additional information regarding the
activities and operations of the Fund and the Portfolio and should be read in
conjunction with the Prospectus. 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. This SAI is not an offer by the Fund to an investor that has not
received a Prospectus. Capitalized terms not otherwise defined in this SAI have
the meanings accorded to them in the Prospectus.
BANKERS TRUST COMPANY
INVESTMENT ADVISER OF THE PORTFOLIO AND ADMINISTRATOR
ICC DISTRIBUTORS, INC.
DISTRIBUTOR
TWO PORTLAND SQUARE PORTLAND, MAINE 04101
<PAGE>
TABLE OF CONTENTS
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS..............................1
PERFORMANCE INFORMATION.....................................................13
VALUATION OF ASSETS; REDEMPTIONS IN KIND....................................14
MANAGEMENT OF THE TRUSTS....................................................16
ORGANIZATION OF THE TRUST...................................................21
TAXATION....................................................................21
FINANCIAL STATEMENTS........................................................23
APPENDIX....................................................................24
<PAGE>
29
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
INVESTMENT OBJECTIVE
The investment objective of the Fund is a high level of current income while
seeking to maintain a stable value per share. 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 net
investable assets in the Portfolio. The Trust may withdraw the Fund's investment
from the Portfolio at any time if the Trust Board determines that it is in the
best interests of the Fund to do so.
The following is a discussion of the various investments of and techniques
employed by the Portfolio.
SHORT-TERM INSTRUMENTS. The Portfolio may hold short-term investments consisting
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 in one of the top two short-term rating
categories by an NRSRO or, if unrated, of comparable quality in the opinion of
the Adviser; (iii) commercial paper; (iv) bank obligations, including negotiable
certificates of deposit, time deposits and bankers' acceptances; and (v)
repurchase agreements. At the time the Portfolio invests in commercial paper,
bank obligations or repurchase agreements, the issuer or the issuer's parent
must have an outstanding long-term debt rating of A or higher by Standard &
Poor's ("S&P") or A-2 or higher by Moody's Investors Service, Inc. ("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.
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 one 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.
MORTGAGE- AND ASSET-BACKED SECURITIES. The yield characteristics of the
mortgage- and asset-backed securities in which the Portfolio may invest differ
from those of traditional debt securities. Among the major differences are that
interest and principal payments are made more frequently on mortgage- and
asset-backed securities (usually monthly) and that principal may be prepaid at
any time because the underlying mortgage loans or other assets generally may be
prepaid at any time. As a result, if the Portfolio purchases these securities at
a premium, a prepayment rate that is faster than expected will reduce their
yield, while a prepayment rate that is slower than expected will have the
opposite effect of increasing yield. Conversely, if the Portfolio purchases
these securities at a discount, faster than expected prepayments will increase,
while slower than expected prepayments will reduce, their yield. Amounts
available for reinvestment by the Portfolio are likely to be greater during a
period of declining interest rates and, as a result, are likely to be reinvested
at lower interest rates than during a period of rising interest rates.
In general, the prepayment rate for mortgage-backed securities decreases as
interest rates rise and increases as interest rates fall. However, rising
interest rates will tend to decrease the value of these securities. In addition,
an increase in interest rates may affect the volatility of these securities by
effectively changing a security that was considered a short-term security at the
time of purchase into a long-term security. Long-term securities generally
fluctuate more widely in response to changes in interest rates than short- or
intermediate-term securities.
The market for privately issued mortgage- and asset-backed securities is smaller
and less liquid than the market for U.S. government mortgage-backed securities.
Collateralized mortgage obligation ("CMO") classes may be specially structured
in a manner that provides any of a wide variety of investment characteristics,
such as yield, effective maturity and interest rate sensitivity. As market
conditions change, however, and particularly during periods of rapid or
unanticipated changes in market interest rates, the attractiveness of the CMO
classes and the ability of the structure to provide the anticipated investment
characteristics may be significantly reduced. These changes can result in
volatility in the market value, and in some instances reduced liquidity, of the
CMO class.
ZERO-COUPON SECURITIES. The Portfolio may invest in certain zero coupon
securities that are "stripped" U.S. Treasury notes and bonds. Zero coupon
securities usually trade at a substantial discount from their face or par value.
Zero coupon securities are subject to greater fluctuations of market value in
response to changing interest rates than debt obligations of comparable
maturities that make current distributions of interest in cash.
WRAPPER AGREEMENTS. Wrapper Agreements are structured with a number of different
features. Wrapper Agreements purchased by the Portfolio are of three basic
types: (1) non-participating, (2) participating and (3) "hybrid." In addition,
the Wrapper Agreements will either be of fixed-maturity or open-end maturity
("evergreen"). The Portfolio enters into particular types of Wrapper Agreements
depending upon their respective cost to the Portfolio and the Wrapper Provider's
creditworthiness, as well as upon other factors. Under most circumstances, it is
anticipated that the Portfolio will enter into participating Wrapper Agreements
of open-end maturity and hybrid Wrapper Agreements.
Under a NON-PARTICIPATING WRAPPER AGREEMENT, the Wrapper Provider becomes
obligated to make a payment to the Portfolio whenever the Portfolio sells
Covered Assets at a price below Book Value to meet withdrawals of a type covered
by the Wrapper Agreement (a "Benefit Event"). Conversely, the Portfolio becomes
obligated to make a payment to the Wrapper Provider whenever the Portfolio sells
Covered Assets at a price above their Book Value in response to a Benefit Event.
In neither case is the Crediting Rate adjusted at the time of the Benefit Event.
Accordingly, under this type of Wrapper Agreement, while the Portfolio is
protected against decreases in the market value of the Covered Assets below Book
Value, it does not realize increases in the market value of the Covered Assets
above Book Value; those increases are realized by the Wrapper Providers.
Under a PARTICIPATING WRAPPER AGREEMENT, the obligation of the Wrapper Provider
or the Portfolio to make payments to each other typically does not arise until
all of the Covered Assets have been liquidated. Instead of payments being made
on the occurrence of each Benefit Event, these obligations are a factor in the
periodic adjustment of the Crediting Rate.
Under a HYBRID WRAPPER AGREEMENT, the obligation of the Wrapper Provider or the
Portfolio to make payments does not arise until withdrawals exceed a specified
percentage of the Covered Assets, after which time payment covering the
difference between market value and Book Value will occur.
A FIXED-MATURITY WRAPPER AGREEMENT terminates at a specified date, at which time
settlement of any difference between Book Value and market value of the Covered
Assets occurs. A fixed-maturity Wrapper Agreement tends to ensure that the
Covered Assets provide a relatively fixed rate of return over a specified period
of time through bond immunization, which targets the duration of the Covered
Assets to the remaining life of the Wrapper Agreement.
An EVERGREEN WRAPPER AGREEMENT has no fixed maturity date on which payment must
be made, and the rate of return on the Covered Assets accordingly tends to vary.
Unlike the rate of return under a fixed-maturity Wrapper Agreement, the rate of
return on assets covered by an evergreen Wrapper Agreement tends to more closely
track prevailing market interest rates and thus tends to rise when interest
rates rise and fall when interest rates fall. An evergreen Wrapper Agreement may
be converted into a fixed-maturity Wrapper Agreement that will mature in the
number of years equal to the duration of the Covered Assets.
Wrapper Providers are banks, insurance companies and other financial
institutions. The number of Wrapper Providers has been increasing in recent
years. The cost of Wrapper Agreements is typically 0.10% to 0.25% per dollar of
Covered Assets per annum.
In the event of the default of a Wrapper Provider, the Portfolio could
potentially lose the Book Value protections provided by the Wrapper Agreements
with that Wrapper Provider. However, the impact of such a default on the
Portfolio as a whole may be minimal or non-existent if the market value of the
Covered Assets thereunder is greater than their Book Value at the time of the
default, because the Wrapper Provider would have no obligation to make payments
to the Portfolio under those circumstances. In addition, the Portfolio may be
able to obtain another Wrapper Agreement from another Wrapper Provider to
provide Book Value protections with respect to those Covered Assets. The cost of
the replacement Wrapper Agreement might be higher than the initial Wrapper
Agreement due to market conditions or if the market value (plus accrued interest
on the underlying securities) of those Covered Assets is less than their Book
Value at the time of entering into the replacement agreement. Such cost would
also be in addition to any premiums previously paid to the defaulting Wrapper
Provider. If the Portfolio were unable to obtain a replacement Wrapper
Agreement, participants redeeming Shares might experience losses if the market
value of the Portfolio's assets no longer covered by the Wrapper Agreement is
below Book Value. The combination of the default of a Wrapper Provider and an
inability to obtain a replacement agreement could render the Portfolio and the
Fund unable to achieve their investment objective of seeking to maintain a
stable value per Share.
With respect to payments made under the Wrapper Agreements between the Portfolio
and the Wrapper Provider, some Wrapper Agreements, as noted in the Fund's
prospectus, provide that payments may be due upon disposition of the Covered
Assets, while others provide for payment only upon the total liquidation of the
Covered Assets or upon termination of the Wrapper Agreement. In none of these
cases, however, would the terms of the Wrapper Agreements specify which
Portfolio Securities are to be disposed of or liquidated. Moreover, because it
is anticipated that each Wrapper Agreement will cover all Covered Assets up to a
specified dollar amount, if more than one Wrapper Provider becomes obligated to
pay to the Portfolio the difference between Book Value and market value (plus
accrued interest on the underlying securities), each Wrapper Provider will pay a
pro-rata amount in proportion to the maximum dollar amount of coverage provided.
Thus, the Portfolio will not have the option of choosing which Wrapper Agreement
to draw upon in any such payment situation. Under the terms of most Wrapper
Agreements, the Wrapper Provider will have the right to terminate the Wrapper
Agreement in the event that material changes are made to the Portfolio's
investment objective, limitations or operations. In such event, the Portfolio
may be obligated to pay the Wrapper Provider termination fees equal in amount to
the premiums that would have been due had the Wrapper Agreement continued
through the predetermined period. The Portfolio will have the right to terminate
a Wrapper Agreement for any reason. Such right, however, may also be subject to
the payment of termination fees. In the event of termination of a Wrapper
Agreement or conversion of an evergreen Wrapper Agreement to a fixed maturity,
some Wrapper Agreements may require that the duration of some portion of the
Fund's portfolio securities be reduced to correspond to the fixed maturity or
termination date and that such securities maintain a higher credit rating than
is normally required, either of which requirements might adversely affect the
return of the Portfolio and the Fund.
For a description of Wrapper Provider ratings, see the Appendix.
ILLIQUID SECURITIES. Mutual funds do not typically hold a significant amount of
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 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 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 under
the 1933 Act, 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 for 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 rule 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.
The Adviser will monitor the liquidity of Rule 144A securities held by the
Portfolio under the supervision of the Portfolio Trust Board. In reaching
liquidity decisions, the Adviser will consider, among other things, the
following factors: (1) the frequency of trades and quotes for the security; (2)
the number of dealers and other potential purchasers or sellers of the security;
(3) dealer undertakings to make a market in the security; and (4) the nature of
the security and of the marketplace trades (e.g., the time needed to dispose of
the security, the method of soliciting offers and the mechanics of the
transfer).
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Portfolio may purchase
securities on a when-issued or delayed delivery basis. Delivery of and payment
for these securities can take place a month or more after the date of the
purchase commitment. The purchase price and the interest rate payable, if any,
on the securities are fixed on the purchase commitment date or at the time the
settlement date is fixed. The value of such securities is subject to market
fluctuation, and no interest accrues to the Portfolio until settlement takes
place. At the time the Portfolio makes the commitment to purchase securities on
a when-issued or delayed delivery basis, it will record the transaction, reflect
the value each day of such securities in determining its NAV and, if applicable,
calculate the maturity for the purposes of average maturity from that date. At
the time of settlement, a when-issued security may be valued at less than the
purchase price. To facilitate such acquisitions, the Portfolio will maintain
with its custodian (Bankers Trust) a segregated account with liquid assets,
consisting of cash, U.S. government securities or other appropriate securities,
in an amount at least equal to such commitments. On delivery dates for such
transactions, the Portfolio will meet its obligations from maturities or sales
of the securities held in the segregated account and/or from cash flow. If the
Portfolio chooses to dispose of the right to acquire a when-issued security
prior to its acquisition, it could, as with the disposition of any other
portfolio obligation, realize a gain or loss due to market fluctuation. It is
the current policy of the Portfolio not to enter into when-issued commitments
exceeding in the aggregate 15% of the market value of its total assets, less
liabilities other than the obligations created by when-issued commitments.
ADDITIONAL U.S. GOVERNMENT OBLIGATIONS. The Portfolio may invest in obligations
issued or guaranteed by U.S. government agencies or instrumentalities. These
obligations may or may not be backed by the "full faith and credit" of the
United States. In the case of securities not backed by the full faith and credit
of the United States, the Portfolio must look principally to the federal agency
issuing or guaranteeing the obligation for ultimate repayment and may not be
able to assert a claim against the United States itself in the event the agency
or instrumentality does not meet its commitments. Securities in which the
Portfolio may invest that are not backed by the full faith and credit of the
United States include obligations of the Tennessee Valley Authority, the Federal
Home Loan Mortgage Corporation and the U.S. Postal Service, each of which has
the right to borrow from the U.S. Treasury to meet its obligations, and
obligations of the Federal Farm Credit System and the Federal Home Loan Banks,
both of whose obligations may be satisfied only by the individual credit of the
issuing agency. Securities that are backed by the full faith and credit of the
United States include obligations of the Government National Mortgage
Association (the "GNMA"), the Farmers Home Administration and the Export-Import
Bank.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS -- GENERAL. The successful
use of these instruments draws upon the Adviser's skill and experience with
respect to such instruments and usually depends on its ability to forecast
interest rate movements correctly. If interest rates move in an unexpected
manner, the Portfolio may not achieve the anticipated benefits of futures
contracts or options thereon 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 thereon and
movements in the price of the securities 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, foreign
government securities or corporate debt securities. U.S. futures contracts have
been designed by exchanges that have been designated "contracts markets" by the
Commodity Futures Trading Commission ("CFTC") and must be executed through a
futures commission merchant, or brokerage firm, that 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 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, U.S. Treasury notes, GNMA modified pass-through mortgage-backed
securities and three-month U.S. Treasury bills. The Portfolio may also enter
into futures contracts that 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
margin"). It is expected that the initial margin would be approximately 1 1/2%
to 5% of a contract's face value. Daily thereafter, the futures contract is
valued and "variation margin" may be required (that is, the Portfolio may have
to provide or may receive cash that reflects any decline or increase in the
contract's value).
At the time of delivery of securities pursuant to a futures 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 termination 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 Portfolio's acquisition or sale of a futures contract is to
attempt to protect the Portfolio from fluctuations in interest rates without
actually buying or selling fixed-income securities. For example, if interest
rates were expected to increase (which thus would cause the prices of debt
securities to decline), 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 securities held by the Portfolio would
decline, but the value of the futures contracts to the Portfolio would increase
at approximately the same rate, thereby keeping the Portfolio's NAV 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 (thus increasing
the value of debt securities), futures contracts for the acquisition of debt
securities 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 the underlying 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 and variation
margin requirements. Rather than meeting additional variation margin
requirements, investors may close futures contracts through offsetting
transactions that 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 Bankers Trust 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 its 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 that 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 that 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 securities may be, but
will not necessarily be, at increased prices that 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 may purchase and write (sell)
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 that is deliverable upon exercise of
the futures contract. If the futures price at expiration of the option is below
the price specified in the option ("exercise price"), the Portfolio will retain
the full amount of the net premium (the premium received for writing the option
less any commission), which will provide a partial hedge against any decline
that may have occurred in its portfolio holdings. The writing of a put option on
a futures contract constitutes a partial hedge against increasing prices of the
security that 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 net premium, which will
provide a partial hedge against any increase in the price of securities that the
Portfolio intends to purchase. If a put or call option the Portfolio has written
is exercised, the Portfolio may incur a loss that will be reduced by the amount
of the net 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, such 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 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 Portfolio Trust Board has adopted a restriction that the Portfolio will not
enter into any futures contract or option on a futures contract if immediately
thereafter the amount of margin deposits on all the futures contracts held by
the Portfolio and premiums paid on outstanding options on its futures contracts
(other than those entered into for BONA FIDE hedging purposes) would exceed 5%
of the market value of the Portfolio's net assets.
OPTIONS ON SECURITIES. The Portfolio may write (sell) covered call and put
options on its portfolio securities ("covered options") to a limited extent 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 it writes. A call option
written by a Portfolio is "covered" if the Portfolio owns the underlying
security covered by the call or has an absolute and immediate right to acquire
that security without additional cash consideration (or for additional cash
consideration held in a segregated account by its custodian) upon conversion or
exchange of other securities held in its portfolio. A call option is also
covered if the Portfolio holds a call option on the same security and in the
same principal amount as the written call option where the exercise price of the
call option so held (a) is equal to or less than the exercise price of the
written call option or (b) is greater than the exercise price of the written
call option if the difference is maintained by the Portfolio in cash, U.S.
government securities and other high quality liquid securities in a segregated
account with its custodian.
When the Portfolio writes a covered call option, it gives the purchaser of the
option the right to buy the underlying security at 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 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
exercise price at any time during the option period. If the option expires
unexercised, the Portfolio will realize income in the amount of the net 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, 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.
The Portfolio 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 Portfolio will realize a profit or loss on a closing purchase
transaction if the amount paid to purchase the 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 Portfolio may enter into a "closing
sale transaction," which involves liquidating the Portfolio's position by
selling the option previously purchased. Where the Portfolio 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 Portfolio writes an option, an amount equal to the net premium received
is included in the liability section of its 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. 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 prices. If an option expires or
if the Portfolio enters into a closing purchase transaction, the Portfolio will
realize a gain (or loss if the cost of the closing purchase transaction exceeds
the net 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 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
Portfolio's holdings. Put options also may be purchased by the Portfolio for the
purpose of benefiting from a decline in the price of securities that 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 non-fundamental policies concerning option
transactions that 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 if 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 will not 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
U.S. 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. Bankers Trust will monitor
the creditworthiness of dealers with whom the Portfolio enters into such options
transactions under the general supervision of the Portfolio Trust Board.
OPTIONS ON SECURITIES INDICES. In addition to options on securities, 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 on
expiration of the option based upon the difference between the exercise price
and the value of the index.
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 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.
RATING SERVICES
The ratings of rating services represent their opinions as to the quality of the
securities that they undertake to rate. It should be emphasized, however, that
ratings are relative and subjective and are not absolute standards of quality.
Although these ratings are an initial criterion for selection of portfolio
investments, the Adviser also makes its own evaluation of these securities,
subject to review by the Portfolio Trust Board. 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 the Adviser will
consider such an event in its determination of whether the Portfolio should
continue to hold the obligation. A description of the ratings referred to herein
and in the Prospectus is set forth in the Appendix.
INVESTMENT RESTRICTIONS
The following investment restrictions are "fundamental policies" of the Fund and
the Portfolio and may not be changed 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 1940 Act, and as used
in this SAI and the Prospectus, means, with respect to the Fund (or the
Portfolio), the lesser of (1) 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 (2) 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 the Portfolio, the
Trust will hold a meeting of the Fund's shareholders and will cast its vote as
instructed by them. Fund shareholders who do not vote will not affect the
Trust's votes at the Portfolio meeting. 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.
None of the fundamental and non-fundamental policies described below shall
prevent the Fund from investing all of its assets in an open-end investment
company with substantially the same investment objective. Because the Fund and
the Portfolio have the same fundamental policies and the Fund invests all of its
net investable assets in the Portfolio, the following discussion (though
speaking only of the Portfolio) applies to the Fund as well.
FUNDAMENTAL RESTRICTIONS. As a matter of fundamental policy, the Portfolio may
not:
(1) Borrow money (including through reverse repurchase or dollar roll
transactions) in excess of 5% of the Portfolio's total assets (taken at
cost), except that the Portfolio may borrow for temporary or emergency
purposes up to 1/3 of its total assets. The Portfolio may pledge,
mortgage or hypothecate not more than 1/3 of such assets to secure such
borrowings provided that collateral arrangements with respect to
options and futures, including deposits of initial 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;
(2) Underwrite securities issued by other persons except insofar as the
Portfolio may 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 portfolio securities and provided that any such loans not
exceed 30% of its total 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 may hold and
sell, for its portfolio, real estate acquired as a result of the
Portfolio'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 Portfolio's investment objective, up to 25% of its
total assets may be invested in any one industry;
(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 contracts, including
deposits of initial and variation margin, are not considered to be the
issuance of a senior security for purposes of this restriction;
(7) Purchase, with respect to 75% of the Portfolio's total assets,
securities of any issuer if such purchase at the time thereof would
cause the Portfolio 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 options or futures contracts shall
not be subject to this restriction; and
(8) Invest, with respect to 75% of the Portfolio's total assets,
more than 5% of its total assets in the securities (excluding U.S.
government securities) of any one issuer.
NON-FUNDAMENTAL RESTRICTIONS. In order to comply with certain statutes and
policies and for other reasons, the Portfolio will not, as a matter of operating
policy (these restrictions may be changed by a vote of the Trustees or the
Portfolio Trust or the Trust as applicable without shareholder approval):
(i) purchase any security or evidence of interest therein on margin,
except that short-term credit necessary for the clearance of
purchases and sales of securities may be obtained and deposits of
initial and variation margin may be made in connection with the
purchase, ownership, holding or sale of futures contracts;
(ii) sell securities it does not own (short sales). (This restriction
does not preclude short sales "against the box" (that is, sales of
securities (a) the Portfolio contemporaneously owns or (b) where the
Portfolio has the right to obtain securities equivalent in kind and
amount to those sold). The Portfolio has no current intention to
engage in short selling);
(iii) purchase securities issued by any investment company except to
the extent permitted by the 1940 Act (including any exemptions or
exclusions therefrom), except that this limitation does not apply to
securities received or acquired as dividends, through offers of
exchange, or as a result of reorganization, consolidation or merger;
and
(iv) invest more than 15% of the Portfolio's net assets (taken at the
greater of cost or market value) in securities that are illiquid or
not readily marketable (excluding Rule 144A securities deemed by the
Portfolio Trust Board to be liquid).
An investment restriction will not be considered violated 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.
The Portfolio will comply with the permitted investments and investment
limitations in the securities laws and regulations of all states in which the
corresponding Fund, or any other registered investment company investing in the
Portfolio, is registered.
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
The Adviser is responsible for decisions to buy and sell securities, futures
contracts and options thereon 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
contracts 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, the Adviser 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 that 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 (a)
advice as to (i) the value of securities, (ii) the advisability of investing in,
purchasing or selling securities, and (iii) the availability of securities or
purchasers or sellers of securities and (b) furnishing analyses and reports
concerning issuers, industries, securities, economic factors and trends,
portfolio strategy and the performance of accounts. Higher commissions may be
paid to firms that provide research services to the extent permitted by law. The
Adviser may use this research information in managing the Portfolio's assets, as
well as the assets of other clients.
Consistent with the policy stated above, the Conduct Rules of the National
Association of Securities Dealers, Inc. and such other policies as the Portfolio
Trust Board may determine, the Adviser may consider sales of shares of the Fund
and of other investment company clients of the Adviser as a factor in the
selection of broker-dealers to execute portfolio transactions. The Adviser will
make such allocations if commissions are comparable to those charged by
nonaffiliated, qualified broker-dealers for similar services.
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 or statistical information from brokers and
dealers can be useful to the Portfolio and to the Adviser, it is the opinion of
the Portfolio's management 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 that 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 between
(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.
PERFORMANCE INFORMATION
STANDARD PERFORMANCE INFORMATION
From time to time, quotations of the Shares' performance may be included in
advertisements, sales literature or shareholder reports. These performance
figures are calculated in the following manner:
YIELD: Yield refers to the income generated by an investment over a given
period of time, expressed as an annual percentage rate. Yields are
calculated according to a standard that is required for all stock and bond
mutual funds. Because this differs from other accounting methods, the
quoted yield may not equal the income actually paid to shareholders. The
30-day yields for the Investment Class Shares, Service Class Shares,
Institutional Class Shares and Institutional Service Class Shares for the
period ending September 30, 1998 were 5.54%, 5.76%, 5.70% and 5.54%,
respectively.
TOTAL RETURN: The Shares' 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. The Shares' may also calculate total return figures that
represent aggregate performance over a period or year-by-year performance.
The total returns for the Investment Class Shares (commencing operations
October 1, 1997), Service Class Shares (commencing operations September
23, 1998), Institutional Class Shares (commencing operations December 14,
1997), and Institutional Service Class Shares (commencing operations April
1, 1998) for the period ending September 30, 1998 were 5.76%, 0.10%,
4.67%, and 2.82%, respectively.
PERFORMANCE RESULTS: Any performance information provided for the Shares'
should not be considered as representative of its performance in the
future, because the NAV and public offering price of Shares will vary
based not only on the type, quality and maturities of the securities held
by 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.
Total return reflects the performance of both principal and income.
Performance information or advertisements may include comparisons
of the Shares' investment results to various unmanaged indices or results
of other mutual funds or investment or savings vehicles. From time to
time, the Shares' ranking may be quoted from various sources, such as
Lipper Analytical Services, Inc., Value Line, Inc. and Morningstar, Inc.
Unlike some bank deposits or other investments that pay a fixed yield for
a stated period of time, the total return of the Shares will vary
depending upon interest rates, the current market value of the securities
held by the Portfolio and the Wrapper Agreements and changes in the
expenses of the Shares and the Portfolio. In addition, during certain
periods for which total return may be provided, Bankers Trust may have
voluntarily agreed to waive portions of its fees, or to reimburse certain
operating expenses of the Fund or the Portfolio. Such waivers will have
the effect of increasing the Shares' net income (and therefore its yield
and total return) during the period such waivers are in effect.
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.
In connection with communicating its performance to current or prospective
shareholders, the Fund also may compare these figures to the performance of
other mutual funds tracked by mutual fund rating services or to unmanaged
indices that may assume reinvestment of dividends but generally do not reflect
deductions for administrative and management costs. Evaluations of the Fund's
performance made by independent sources may also be used in advertisements
concerning the Fund. Sources for the Fund's performance information could
include the following: ASIAN WALL STREET JOURNAL, BARRON'S, BUSINESS WEEK,
CHANGING TIMES, THE KIPLINGER MAGAZINE, CONSUMER DIGEST, FINANCIAL TIMES,
FINANCIAL WORLD, FORBES, FORTUNE, GLOBAL INVESTOR, INVESTOR'S DAILY, LIPPER
ANALYTICAL SERVICES, INC.'S MUTUAL FUND PERFORMANCE ANALYSIS, MONEY, MORNINGSTAR
INC., NEW YORK TIMES, PERSONAL INVESTING NEWS, PERSONAL INVESTOR, SUCCESS, U.S.
NEWS AND WORLD REPORT, VALUELINE, WALL STREET JOURNAL, WEISENBERGER INVESTMENT
COMPANIES SERVICES, WORKING WOMEN and WORTH.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature of the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on these
developments by Fund portfolio managers and their views and analysis on how such
developments could affect the Fund. In addition, advertising and sales
literature may quote statistics and give general information about the mutual
fund industry, including the growth of the industry, from sources such as the
Investment Company Institute ("ICI"). For example, according to the ICI,
thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $4.4 trillion to the more than 6,700 funds available.
VALUATION OF ASSETS; REDEMPTIONS IN KIND
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. Such market valuations may represent the last quoted price
on the securities' major trading exchange or quotes received from dealers or
market makers in the relevant securities or may be determined through the use of
matrix pricing. In matrix pricing, pricing services may use various pricing
models, involving comparable securities, historic relative price movements,
economic factors and dealer quotations. Over-the-counter securities will
normally be valued at the bid price. Short-term debt obligations and money
market securities maturing in 60 days or less are valued at amortized cost.
Securities for which market quotations are not readily available are valued by
Bankers Trust pursuant to procedures adopted by the Portfolio's Trust Board.
The NAV per Share is calculated once on each Valuation Day as of the Valuation
Time, which is currently 4:00 p.m., Eastern time, or if the NYSE closes early,
at the time of such early closing. The NAV per Share is computed by dividing the
value of the Fund's assets (I.E., the value of its investment in the Portfolio
and other assets, if any), less all liabilities, by the total number of its
Shares outstanding. The Portfolio's securities and other assets are valued
primarily on the basis of market quotations or, if quotations are not readily
available, by a method that Portfolio Trust Board believes accurately reflects
fair value.
Pursuant to procedures adopted by the Portfolio Trust Board, the Wrapper Value
generally will be equal to the difference between the Book Value and the market
value (plus accrued interest on the underlying securities) of the applicable
Covered Assets. If the market value (plus accrued interest on the underlying
securities) of the Covered Assets is greater than their Book Value, the Wrapper
Value will be reflected as a liability of the Portfolio in the amount of the
difference, I.E., a negative value, reflecting the potential liability of the
Portfolio to the Wrapper Provider. If the market value (plus accrued interest on
the underlying securities) of the Covered Assets is less than their Book Value,
the Wrapper Value will be reflected as an asset of the Portfolio in the amount
of the difference, I.E., a positive value, reflecting the potential liability of
the Wrapper Provider to the Portfolio. In performing its fair value
determination, the Portfolio Trust Board expects to consider the
creditworthiness and ability of a Wrapper Provider to pay amounts due under the
Wrapper Agreement. If the Portfolio Trust Board determine that a Wrapper
Provider is unable to make such payments, that Board may assign a fair value to
the Wrapper Agreement that is less than the difference between the Book Value
and the market value (plus accrued interest on the underlying securities) of the
applicable Covered Assets and the Portfolio might be unable to maintain NAV
stability.
The problems inherent in making a good faith determination of value are
recognized in the codification effected by SEC Financial Reporting Release No. 1
(formerly Accounting Series Release No. 113) ("FRR 1"), which concludes that
there is "no automatic formula" for calculating the value of restricted
securities. It recommends that the best method simply is to consider all
relevant factors before making any calculation. According to FRR 1, such factors
would include consideration of the --
type of security involved, financial statements, cost at date of
purchase, size of holding, discount from market value of
unrestricted securities of the same class at the time of purchase,
special reports prepared by analysts, information as to any
transactions or offers with respect to the security, existence of
merger proposals or tender offers affecting the security, price and
extent of public trading in similar securities of the issuer or
comparable companies, and other relevant matters.
The Adviser will value securities purchased by the Portfolio that are restricted
as to resale or for which current market quotations are not readily available,
including Wrapper Agreements, based upon all relevant factors as outlined in FRR
1.
The Fund and the Portfolio each reserves the right, if conditions exist that
make cash payments undesirable, or for other reasons, to honor any request for
redemption or withdrawal, respectively, by making payment wholly or partly in
Portfolio Securities and in Wrapper Agreements, as the same may be chosen by the
Adviser in its sole discretion (a "redemption in kind"). Such securities and
Wrapper Agreements shall be valued as they are for purposes of computing the
Fund's or the Portfolio's NAV, as the case may be. If payment is made to a Fund
shareholder in securities, the shareholder may incur transaction expenses in
converting those securities into cash. To the extent that a redemption in kind
includes Wrapper Agreements, the Fund will obtain and assign to the redeeming
Plan or Plan Pool one or more Wrapper Agreements issued by the Wrapper Providers
covering the portfolio securities distributed in kind. The terms and conditions
of Wrapper Agreements provided to a redeeming shareholder will be the same or
substantially similar to the terms and conditions of the Wrapper Agreements held
by the Portfolio. The redeeming Plan or Plan Pool must execute the assigned
Wrapper Agreement(s) in order to obtain the benefits provided thereunder.
Wrapper Agreements are not liquid securities and may impose restrictions on
termination or withdrawal, including notice periods of one year (or more for
non-participant directed withdrawals). The maintenance of Wrapper Agreements
distributed in kind may also require that a withdrawing Plan or Plan Pool pay
fees to the Wrapper Provider. Such fees are anticipated to be comparable to the
fees paid by the Portfolio with respect to Covered Assets (typically 0.10% to
0.25% annually per dollar of Covered Assets). Wrapper Agreements distributed in
kind will also require the portfolio securities covered be of a specified
duration or maturity, consist of specified types of securities or be of a
specified investment quality. Accordingly, although a redeeming Plan or Plan
Pool may freely sell portfolio securities covered by a Wrapper Agreement, its
management of the portfolio securities must be consistent with Wrapper Agreement
requirements in order for it to obtain the benefits of the agreements. Moreover,
a Plan or Plan Pool may be required to obtain at its own expense the services of
a qualified investment manager to manage the securities distributed in kind in
conformity with the Wrapper Agreement provisions and may incur additional
administrative expenses in managing this portfolio. In some cases, however, a
Plan or Plan Pool may be able to further assign the Wrapper Agreements and
covered securities to other commingled investment vehicles, such as a bank
collective fund, and thereby avoid the imposition of these additional expenses.
The Trust, on behalf of the Fund, and the Portfolio have to redeem Shares or
beneficial interests, respectively, with respect to any one investor during any
90-day period solely in cash up to the lesser of $500,000 or 1% of the NAV of
the Fund or the Portfolio, as the case may be, at the beginning of the period.
The Trust, on behalf of the Fund, is also seeking an exemptive order from the
SEC with respect to redemptions in kind made to 5% or greater shareholders of
the Fund.
The Portfolio has agreed to make a redemption in kind to the Fund whenever the
Fund wishes to make a redemption in kind to a shareholder thereof, and therefore
Fund shareholders that receive redemptions in kind will receive Portfolio
Securities and Wrapper Agreements 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 business day the Portfolio determines its
NAV. At the close of business on each such day, the value of each investor's
beneficial interest in the Portfolio will be determined by multiplying the NAV
of the Portfolio by the percentage effective for that day that represents that
investor's share of the aggregate beneficial interests in the Portfolio. Any
additions or withdrawals that are to be effected as of the close of business 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 a fraction (a) the numerator of which is the value of the investor's
investment in the Portfolio as of the close of business on that day plus or
minus, as the case may be, the amount of net additions to or withdrawals from
the investor's investment in the Portfolio effected as of the close of business
on that day, and (b) the denominator of which is the aggregate NAV of the
Portfolio as of the close of business on that day plus or minus, as the case may
be, the amount of net additions to or withdrawals from the aggregate investments
in the Portfolio by all investors therein. The percentage so determined will
then be applied to determine the value of the investor's interest in the
Portfolio at the close of business on the following business day.
MANAGEMENT OF THE TRUSTS
Each Board of Trustees is composed of persons experienced in financial matters
who meet throughout the year to oversee the activities of the Fund or the
Portfolio, as the case may be. In addition, the Trustees review contractual
arrangements with companies that provide services to the Fund/Portfolio and
review the Fund's performance.
The Trustees and officers of the Trusts, 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 5800 Corporate Drive, Pittsburgh, Pennsylvania 15237-5829.
TRUSTEES OF THE TRUST
MARTIN J. GRUBER (birthdate: 7/15/1937) - 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: 12/10/1924) - Trustee; Professor,
Department of Economics, Columbia University. His address is 35 Claremont
Avenue, New York, New York 10027.
HARRY VAN BENSCHOTEN (birthdate: 2/18/1928) - 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, Florida 33963.
TRUSTEES OF THE PORTFOLIO TRUST
CHARLES P. BIGGAR (birthdate: 10/13/1930) - 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: 3/28/1930) - Trustee; Retired; Director, Coutts
Group; Coutts (U.S.A.) International; Coutts Trust Holdings Ltd.; Director,
Zweig Series Trust; formerly Partner of KPMG Peat Marwick; Director, Vinters
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: 10/11/1935) - 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 TRUSTS
Unless otherwise specified, each officer listed below holds the same position
with each Trust.
RONALD M. PETNUCH (birthdate: 2/27/1960) - President and Treasurer, Senior
Vice President; Federated Services Company ("FSC"); formerly, Director of
Proprietary Client Services, Federated Administrative Services ("FAS"), and
Associate Corporate Counsel, Federal Investors ("FI").
CHARLES L. DAVIS, JR. (birthdate: 3/23/1960) - Vice President and Assistant
Treasurer; Vice President, FAS.
JAY S. NEUMAN (birthdate: 4/22/1950) - Secretary; Corporate Counsel, FI.
Messrs. Petnuch, Neuman and Davis also hold similar positions for other
investment companies for which an affiliate of FI serves as the principal
underwriter.
No person who is an officer or director of Bankers Trust is an officer or
trustee of the Trusts. No director, officer or employee of ICC, FI, or any of
their affiliates will receive any compensation from the Trust or the Portfolio
for serving as an officer or trustee of the Trust or the Portfolio.
<PAGE>
TRUSTEE COMPENSATION TABLE
Aggregate Aggregate Total Compensation
Name of Person, Compensation Compensation from Fund Complex
POSITION, FROM TRUST*+ from Portfolio+ PAID TO TRUSTEES**
Harry Van Benschoten $17,666 N/A $32,500
Trustee of Trust
Martin J. Gruber $17,666 N/A $32,500
Trustee of Trust
Kelvin J. Lancaster $9,297 N/A $32,500
Trustee of Trust
Charles P. Biggar N/A $1,042 $33,750
Trustee of
Portfolio Trust
S. Leland Dill N/A $879 $33,750
Trustee of
Portfolio Trust
Philip Saunders, Jr. N/A $886 $33,750
Trustee of
Portfolio Trust
* The aggregate compensation is provided for the BT Pyramid Mutual Funds
which is comprised of 6 funds.
+ Information is provided for the Trust's fiscal year ended September 30, 1998.
** Aggregated information is furnished for the BT Family of Funds which
consists of the following: BT Investment Funds, BT Institutional Funds, BT
Pyramid Mutual 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 fiscal
year ended September 30, 1998.
As of October 30, 1998, the Trustees and officers of the Trusts and the
Fund owned in the aggregate less than 1% of the shares of any fund or the Trust
(all series taken together).
As of October 30, 1998, the following shareholders owned 5% or more of the
outstanding Institutional Class Shares of the Fund: Chase Manhattan Bank,
Trustee, FBO Avon Employees Savings & Stock Ownership Plan, Brooklyn, New York,
owned approximately 8,276,337 shares (48.05%); Bankers Trust Co. of CA, Trustee,
Futura 401K Savings Plan, Los Angeles, California, owned approximately 4,071,042
shares (23.63%); Boston Safe Deposit & Trust Co., Thermo Electron Corp. Moneywat
Plus Plan, Medford, Massachusetts, owned approximately 2,747,598 shares
(15.95%); and Partnershare Plan of Bankers Trust Corporation and Affiliates,
Jersey City, New Jersey, owned approximately 1,178,464 shares (6.84%).
As of October 30, 1998, the following shareholders owned 5% or more of the
outstanding Institutional Service Class Shares of the Fund: Collins & Aikman
Retirement Income Plan c/o Bankers Trust, Jersey City, New Jersey, owned
approximately 3,913,626 shares (69.30%); and Bankers Trust Co., Trustee, Grove
US LLC Retirement Savings, Jersey City, New Jersey, owned approximately
1,759,815 shares (31.16%).
As of October 30, 1998, the following shareholders owned 5% or more of the
outstanding Investment Class Shares of the Fund: Robert E. Rich, Robert E. Rich,
Jr., David A. Rich, Trustee, Rich Products Retirement & Savings Plan, Buffalo,
New York, owned approximately 1,518,974 shares (93.06%); and Bankers Trust Co.,
Trustee, Powell Goldstein Frazer & Murphy Retirement Plan, New York, New York,
owned approximately 110,214 shares (6.75%).
As of October 30, 1998, the following shareholders owned 5% or more of the
outstanding Service Class Shares of the Fund: National Plus 401K Plan FBO
Textile Workers Pension Fund, Lincoln, Rhode Island, owned approximately 104,962
shares (73.51%); and Eide Bailly EBS, Eden Prairie, Minnesota, owned
approximately 32,244 shares (26.78%).
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 objectives, 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 the Portfolio bears certain other
expenses incurred in its 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, ICC, FI, or any of their
affiliates; SEC fees and state Blue Sky qualification fees; charges of
custodians and transfer and dividend disbursing agents; 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 SAIs 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.
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.
For the year ended September 30, 1998, Bankers Trust earned $435,257 in
compensation for investment advisory services. During the same period, Bankers
Trust reimbursed $244,398 to cover Portfolio expenses.
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 record keeping 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), executive and
administrative services, and stationery and office supplies; prepare reports to
shareholders or investors; prepare and file tax returns; 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 the 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 period ended September 30, 1998, Bankers Trust earned $23,442 from the
Investment Class, $19 from the Service Class, $211,798 from the Institutional
Class, and $20,080 from the Institutional Service Class in compensation for
administrative and other services provided to the Fund. For the year ended
September 30, 1998, Bankers Trust earned $64,560 for administrative and other
services provided to the Portfolio.
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 the letters "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 letters "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 letters "BT" as part of its name. If this were to occur, the
Trustees would select an appropriate new name for the Trust, but there would be
no other material effect on the Trust, its shareholders or activities.
BANKING REGULATORY MATTERS
Bankers Trust has been advised by its counsel that in its opinion Bankers Trust
may perform the services for the Portfolio contemplated by the Advisory
Agreement and other activities for the Fund and the Portfolio described in the
Prospectus and this SAI without violation of the Glass-Steagall Act or other
applicable banking laws or regulations. However, counsel has pointed out that
future changes in either federal or state statutes and regulations concerning
the permissible activities of banks or trust companies, as well as future
judicial or administrative decisions or interpretations of present and future
statutes and regulations, might prevent Bankers Trust from continuing to perform
those services for the Trust 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 AUDITORS
Willkie Farr & Gallagher, 787 Seventh Avenue, New York, New York 10019, serves
as counsel to the Trusts. Ernst & Young LLP, Two Commerce Square, 2001 Market
Street, Philadelphia, Pennsylvania, 19103, acts as independent auditors of the
Fund and the Portfolio.
ORGANIZATION OF THE TRUST
The Trust was organized on February 28, 1992. 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 that liabilities of each series of
the Trust (including the Fund) are chargeable only against assets of that series
and that a creditor of one series may not seek satisfaction from the assets of
another series. The Declaration of Trust also provides for indemnification from
the Fund's property for all losses and expenses of any shareholder held
personally liable for the obligations of the Fund. Thus, the risk of a
shareholder's incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund itself would be unable to meet its
obligations, a possibility that the Trust believes is remote. Upon payment of
any liability incurred by the Fund, the shareholder paying the liability would
be entitled to reimbursement from the general assets of the Fund. The Trustees
intend to conduct the operations of the Fund in a manner so as to avoid, as far
as possible, ultimate liability of the shareholders for liabilities of the Fund.
Except as described below, whenever the Fund is requested to vote on matters
pertaining to the Portfolio, the Fund will hold a meeting of its shareholders
and will cast its votes proportionately as instructed by Fund shareholders.
However, subject to applicable statutory and regulatory requirements, the Fund
will not request a vote of its shareholders with respect to any proposal
relating to the Portfolio that (a) if made with respect to the Fund, would not
require the vote of the shareholders of the Fund, or (b) is identical in all
material respects to a proposal that has previously been approved by the Fund's
shareholders. Any proposal submitted to holders in the Portfolio, and that is
not required to be voted on by the Fund's shareholders, will nonetheless be
voted on by the Trust Board.
TAXATION
TAXATION OF THE FUND
The Fund intends to qualify annually to be treated as a regulated investment
company under the Code. To qualify for that treatment, the Fund must, among
other things, (a) derive at least 90% of its gross income each taxable year from
dividends, interest, payments with respect to securities loans and gains from
the sale or other disposition of securities, or other income (including gains
from options or futures contracts) derived with respect to its business of
investing in securities (the "Income Requirement"), (b) diversify its holdings
so that, at the end of each quarter of its taxable year, (i) at least 50% of the
value of its assets is represented by cash and cash items (including
receivables), U.S. government securities, securities of other regulated
investment companies and other securities, with such other securities of any one
issuer limited to an amount not greater than 5% of the value of the Fund's total
assets and not greater than 10% of the issuer's outstanding voting securities
and (ii) not more than 25% of the value of its total assets is invested in the
securities of any one issuer (other than U.S. government securities or the
securities of other regulated investment companies), and (c) distribute for each
taxable year at least 90% of its investment company taxable income (generally
consisting of interest, dividends and the excess of net short-term capital gain
over net long-term capital loss).
The Fund will be subject to a nondeductible 4% excise tax to the extent it fails
to distribute by the end of any calendar year substantially all of its ordinary
income for that year and capital gain net income for the one-year period ending
on October 31 of that year, plus any undistributed amount from the prior year.
The Fund, as an investor in the Portfolio, will be deemed to own a proportionate
share of the Portfolio's assets, and to earn a proportionate share of the
Portfolio's income, for purposes of determining whether the Fund satisfies all
the requirements described above to qualify as a regulated investment company.
See the next section for a discussion of the tax consequences to the Fund of
hedging transactions engaged in by the Portfolio.
The Trust is organized as a Massachusetts business trust, and neither the Trust
nor the Fund is liable for any income or franchise tax in the Commonwealth of
Massachusetts, provided the Fund continues to qualify as a regulated investment
company under Subchapter M of the Code. The investment by the Fund in the
Portfolio will not cause the Fund to be liable for any income or franchise tax
in the State of New York.
TAXATION OF THE PORTFOLIO
The Portfolio will be treated as a separate partnership for federal income tax
purposes and will not be a "publicly traded partnership." As a result, the
Portfolio will not be subject to federal income tax. Instead, the Fund and other
investors in the Portfolio will be required to take into account, in computing
their federal income tax liability, their respective shares of the Portfolio's
income, gains, losses, deductions and credits, without regard to whether they
have received any cash distributions from the Portfolio. The Portfolio also will
not be subject to state income or franchise tax.
Because, as noted above, the Fund will be deemed to own a proportionate share of
the Portfolio's assets, and to earn a proportionate share of the Portfolio's
income, for purposes of determining whether the Fund satisfies the requirements
to qualify as a regulated investment company, the Portfolio intends to conduct
its operations so that the Fund will be able to satisfy all those requirements.
Distributions received by the Fund from the Portfolio (whether pursuant to a
partial or complete withdrawal or otherwise) generally will not result in the
Fund's recognizing any gain or loss for federal income tax purposes, except that
(a) gain will be recognized to the extent any cash that is distributed exceeds
the Fund's basis for its interest in the Portfolio prior to the distribution,
(b) income or gain will be realized if the distribution is in liquidation of the
Fund's entire interest in the Portfolio and includes a disproportionate share of
any unrealized receivables held by the Portfolio, and (c) loss will be
recognized if a liquidation distribution consists solely of cash and/or
unrealized receivables. The Fund's basis for its interest in the Portfolio
generally will equal the amount of cash and the basis of any property the Fund
invests in the Portfolio, increased by the Fund's share of the Portfolio's net
income and gains and decreased by (i) the amount of any cash and the basis of
any property distributed from the Portfolio to the Fund and (ii) the Fund's
share of the Portfolio's losses, if any.
The Portfolio's use of hedging strategies, such as writing (selling) and
purchasing options and futures contracts, involves complex rules that will
determine for income tax purposes the character and timing of recognition of the
gains and losses it realizes in connection therewith. Gains from options and
futures contracts derived by the Portfolio with respect to its business of
investing in securities will qualify as permissible income for the Fund under
the Income Requirement.
SALE OF SHARES
Any gain or loss realized by a shareholder on the sale or other disposition of
Shares, or on receipt of a distribution in complete liquidation of the Fund,
generally will be a capital gain or loss that will be long-term or short-term,
depending upon the shareholder's holding period for the Shares. Any loss
realized on a sale or exchange will be disallowed to the extent the Shares
disposed of are replaced within a period of 61 days beginning 30 days before and
ending 30 days after disposition of the Shares. In such a case, the basis of the
Shares acquired will be adjusted to reflect the disallowed loss. Any loss
realized by a shareholder on a disposition of Shares held for six months or less
will be treated as a long-term capital loss to the extent of any distributions
of net capital gains received by the shareholder with respect to those Shares.
FOREIGN WITHHOLDING TAXES
Income received by the Portfolio from sources within foreign countries may be
subject to withholding and other taxes imposed by those countries that would
reduce the yield on its securities. Tax conventions between certain countries
and the United States may reduce or eliminate these foreign taxes, however, and
many foreign countries do not impose taxes on capital gains in respect of
investments by foreign investors.
FINANCIAL STATEMENTS
The financial statements for the Fund and the Portfolio for the fiscal year
ended September 30, 1998 are incorporated herein by reference to the Annual
Report to shareholders of the Fund dated September 30, 1998. A copy of the
Annual Report may be obtained without charge by contacting the Fund.
<PAGE>
APPENDIX
DESCRIPTION OF MOODY'S CORPORATE BOND RATINGS:
Aaa- Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa - Bonds rated Aa are judged to be of high quality by all standards. Together
with the Aaa group they comprise what are generally known as high-grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa securities.
A - Bonds rated A possess many favorable investment attributes and are to be
considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa - Bonds rated Baa are considered as medium-grade obligations, i.e. they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such, bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba - Bonds rated Ba are judged to have speculative elements. Their future cannot
be considered as well assured. Often the protection of interest and principal
payments may be very moderate and thereby not well safeguarded during both (good
and bad times over the future). Uncertainty of position characterizes bonds in
this class.
B - Bonds rated B generally lack characteristics of a desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
Caa - Bonds rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or
interest.
Ca - Bonds rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked short-comings.
C - Bonds rated C are the lowest-rated class of bonds and issued so rated can be
regarded as having extremely poor prospects of ever attaining any real
investment standing.
Moody's applies numerical modifiers, 1, 2, and 3, in each generic rating
classification from Aa through B in its corporate bond system. The modifier 1
indicates that the security ranks in the higher end of its generic rating
category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end of its generic rating category.
DESCRIPTION OF S&P'S CORPORATE BOND RATINGS:
AAA- Debt rated AAA has the highest rating assigned by Standard & Poor's to a
debt obligation. Capacity to pay interest and repay principal is extremely
strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher-rated issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
<PAGE>
BBB - Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to weakened capacity to pay interest and repay principal for debt
in this category than in higher-rated categories.
BB - Debt rate BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments.
B - Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB- rating.
CCC - Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal.
CC - Debt rated CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.
C - The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed but debt service
payments are continued.
CI - The rating CI is reserved for income bonds on which no interest is being
paid.
D - Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating will also be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
Plus (+) or minus (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
DUFF & PHELPS' LONG-TERM DEBT RATINGS:
===============================================================================
===============================================================================
AAA Highest credit quality. The risk factors are negligible, being
only slightly more than for risk-free U.S. Treasury debt.
===============================================================================
AA+ High credit quality. Protection factors are strong. Risk is
modest but may vary slightly from time to time because of
AA economic conditions.
AA-
===============================================================================
A+ Protection factors are average but adequate. However, risk
factors are more variable and greater in periods of economic
A stress.
A-
===============================================================================
BBB+ Below-average protection factors but still considered
sufficient for prudent investment. Considerable variability in
BBB risk during economic cycles.
BBB-
- --------------=================================================================
BB+ Below investment grade but deemed likely to meet obligation
when due. Present or prospective financial protection factors
BB fluctuate according to industry conditions or company
fortunes. Overall quality may move up or down frequently
BB- within this category.
- --------------=================================================================
<PAGE>
===============================================================================
B+ Below investment grade and possessing risk that obligations
will not be met when due. Financial protection factors will
B fluctuate widely according to economic cycles, industry conditions
and/or company fortunes. Potential exists for
B- frequent changes in the rating within this category or into a
higher or lower rating grade.
===============================================================================
CCC Well below investment-grade securities. Considerable uncertainty
exists as to timely payment of principal, interest or preferred
dividends. Protection factors are narrow and risk can be
substantial with unfavorable economic/industry conditions, and/or
with unfavorable company developments.
===============================================================================
DD Defaulted debt obligations. Issuer failed to meet scheduled
principal and/or interest payments.
===============================================================================
DP Preferred stock with dividend arrearages.
===============================================================================
DESCRIPTION OF MOODY'S SHORT-TERM DEBT RATINGS:
Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics: leasing
market positions in well-established industries; high rates of return on funds
employed; conservative capitalization structures with moderate reliance on debt
and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; well-established access to
a range of financial markets and assured sources of alternate liquidity.
Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Issuers rates Prime-3 (or related supporting institutions) have an acceptable
capacity for repayment of short-term promissory obligations. The effect of
industry characteristics and market composition may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and the requirement for relatively high financial
leverage. Adequate alternate liquidity is maintained.
DESCRIPTION OF S&P SHORT-TERM ISSUER CREDIT RATINGS:
A-1 An obligor rated 'A-1' has STRONG capacity to meet its financial
commitments. It is rated in the highest category by Standard & Poor's. Within
this category, certain obligors are designated with a plus sign (+). This
indicates that the obligor's capacity to meet its financial commitments is
EXTREMELY STRONG.
A-2 An obligor rated 'A-2' has SATISFACTORY capacity to meet its financial
commitments. However, it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligors in the highest
rating category.
A-3 An obligor rated 'A-3' has ADEQUATE capacity to meet its financial
obligations. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitments.
DESCRIPTION OF DUFF & PHELPS' COMMERCIAL PAPER RATINGS:
D-1+ Highest certainty of timely payment. Short term liquidity, including
internal operating factors and/or access to alternative sources of funds, is
outstanding, and safety is just below risk free U.S. Treasury short term
obligations.
D-1 Very high certainty of timely payment. Liquidity factors are excellent and
supported by good fundamental protection factors. Risk factors are minor.
D-1- High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very small.
D-2 Good certainty of timely payment. Liquidity factors and company fundamentals
are sound. Although ongoing funding needs may enlarge total financing
requirements, access to capital markets is good. Risk factors are small.
D-3 Satisfactory liquidity and other protection factors qualify issues as to
investment grade. Risk factors are larger and subject to more variation.
Nevertheless, timely payment is expected.
DESCRIPTION OF MOODY'S INSURANCE FINANCIAL STRENGTH RATINGS:
AAA
Insurance companies rated Aaa offer exceptional financial security. While the
financial strength of these companies is likely to change, such changes as can
be visualized are most unlikely to impair their fundamentally strong position.
AA
Insurance companies rated Aa offer excellent financial security. Together with
the Aaa group they constitute what are generally known as high grade companies.
They are rated lower than Aaa companies because long-term risks appear somewhat
larger.
A
Insurance companies rated A offer good financial security. However, elements may
be present which suggest a susceptibility to impairment sometime in the future.
BAA
Insurance companies rated Baa offer adequate financial security. However,
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time.
BA
Insurance companies rated Ba offer questionable financial security. Often the
ability of these companies to meet policyholder obligations maybe very moderate
and thereby not well safeguarded in the future.
B
Insurance companies rated B offer poor financial security. Assurance of punctual
payment of policyholder obligations over any long period of time is small.
CAA
Insurance companies rated Caa offer very poor financial security. They may be in
default on their policyholder obligations or there may be present elements of
danger with respect to punctual payment of policyholder obligations and claims.
CA
Insurance companies rated Ca offer extremely poor financial security. Such
companies are often in default on their policyholder obligations or have other
marked shortcomings.
C
Insurance companies rated C are the lowest rated class of insurance company and
can be regarded as having extremely poor prospects of ever offering financial
security.
Numeric modifiers: Numeric modifiers are used to refer to the ranking within the
group -- one being the highest and three being the lowest. However, the
financial strength of companies within a generic rating symbol (Aa, for example)
is broadly the same.
DESCRIPTION OF S&P CLAIMS PAYING ABILITY RATING DEFINITIONS:
Secure Range: AAA to BBB
"AAA" Superior financial security on an absolute and relative basis. Capacity to
meet policyholder obligations is overwhelming under a variety of economic and
underwriting conditions.
"AA" Excellent financial security. Capacity to meet policyholder obligations is
strong under a variety of economic and underwriting conditions.
"A" Good financial security, but capacity to meet policyholder obligations is
somewhat susceptible to adverse economic and underwriting conditions.
"BBB" Adequate financial security, but capacity to meet policyholder obligations
is susceptible to adverse economic and underwriting conditions.
Vulnerable Range: BB to CCC
"BB" Financial security may be adequate, but capacity to meet policyholder
obligations, particularly with respect to long-term or "long-tail" policies, is
vulnerable to adverse economic and underwriting conditions.
"B" Vulnerable financial security. Currently able to meet policyholder
obligations, but capacity to meet policyholder obligations is particularly
vulnerable to adverse economic and underwriting conditions.
"CCC" Extremely vulnerable financial security. Continued capacity to meet
policyholder obligations is highly questionable unless favorable economic and
underwriting conditions prevail.
"R" Regulatory action. As of the date indicated, the insurer is under
supervision of insurance regulators following rehabilitation, receivership,
liquidation, or any other action that reflects regulatory concern about the
insurer's financial condition. Information on this status is provided by the
National Association of Insurance Commissioners and other regulatory bodies.
Although believed to be accurate, this information is not guaranteed. The "R"
rating does not apply to insurers subject only to nonfinancial actions such as
market conduct violations.
Plus (+) or minus (-) Ratings from "AA" to "B" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
DUFF & PHELPS' CLAIMS PAYING ABILITY RATINGS:
===============================================================================
AAA Highest claims paying ability. Risk factors are negligible.
===============================================================================
AA+ Very high claims paying ability. Protection factors are strong.
Risk is modest, but may vary slightly over time due to economic
AA and/or underwriting conditions.
AA-
===============================================================================
A+ High claims paying ability. Protection factors are average and
there is an expectation of variability in risk over time due to
A economic and/or underwriting conditions.
A-
===============================================================================
BBB+ Adequate claims paying ability. Protection factors are
adequate. There is considerable variability in risk over time
BBB due to economic and/or underwriting conditions.
BBB-
===============================================================================
BB+ Uncertain claims paying ability and less than investment grade
quality. However, the company is deemed likely to meet these
BB obligations when due. Protection factors will vary widely with
changes in economic and/or underwriting conditions.
BB-
===============================================================================
B+ Possessing risk that policyholder and contractholder obligations
will not be paid when due. Protection factors will vary widely
B with changes in economic and underwriting conditions or company
fortunes.
B-
===============================================================================
CCC There is substantial risk that policyholder and contractholder
obligations will not be paid when due. Company has been or is likely
to be placed under state insurance department supervision.
===============================================================================
DD Company is under an order of liquidation.
===============================================================================
<PAGE>
- 127 -
DISTRIBUTOR
ICC Distributors, Inc. BT PYRAMID MUTUAL FUNDS
Two Portland Square
Portland, ME 04101
INVESTMENT ADVISER BT PRESERVATIONPLUS FUND
INVESTMENT CLASS
Bankers Trust Company SERVICE CLASS
130 Liberty Street INSTITUTIONAL CLASS
(One Bankers Trust Plaza) INSTITUTIONAL SERVICE CLASS
New York, New York 10006
TRANSFER AGENT
Bankers Trust Company
130 Liberty Street
(One Bankers Trust Plaza)
New York, New York 10006
CUSTODIAN
Bankers Trust Company STATEMENT OF
130 Liberty Street ADDITIONAL INFORMATION
(One Bankers Trust Plaza) NOVEMBER 30, 1998
New York, New York 10006
INDEPENDENT AUDITORS
Ernst & Young LLP
Two Commerce Square
2001 Market Street
Philadelphia, Pennsylvania 19103
LEGAL COUNSEL
Willkie Farr & Gallagher
787 Seventh Avenue
New York, NY 10019
Cusips:
055847842
055847834
055847818
055847826
STAPRVPLUS (11/98)
(BULLET) BT PYRAMID MUTUAL FUNDS (BULLET)
BT PRESERVATIONPLUS FUND
INSTITUTIONAL SERVICE CLASS
Seeks a high level of current income while seeking to maintain a stable value
per share.
PROSPECTUS
NOVEMBER 30, 1998
BT Pyramid Mutual Funds (the "Trust") is an open-end management investment
company (mutual fund). The BT PreservationPlus Fund (the "Fund") is a separate
series of the Trust and offers separate classes of shares. The shares offered by
this prospectus are the Institutional Service Class of shares (the "Shares").
The Fund seeks a high level of current income while seeking to maintain a stable
value per share. The Fund is offered solely to participant-directed employee
benefit plans meeting specified criteria.
UNLIKE OTHER MUTUAL FUNDS, THE FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY
INVESTING ALL OF ITS NET INVESTABLE ASSETS IN BT PRESERVATIONPLUS PORTFOLIO (THE
"PORTFOLIO"), A SEPARATE SUBTRUST OF BT INVESTMENT PORTFOLIOS, A NEW YORK MASTER
TRUST FUND (THE "PORTFOLIO TRUST"), WITH AN IDENTICAL INVESTMENT OBJECTIVE. SEE
"SPECIAL INFORMATION CONCERNING THE MASTER-FEEDER FUND STRUCTURE." THE FUND IS
NOT A MONEY MARKET FUND, AND THERE CAN BE NO ASSURANCE THAT IT WILL BE ABLE TO
MAINTAIN A STABLE VALUE PER SHARE OR OTHERWISE ACHIEVE ITS OBJECTIVE.
Please read this Prospectus before investing and keep it on file for future
reference. It contains important information concerning the Fund and the
Portfolio, including how the Portfolio invests and the services available to the
Fund's shareholders. Bankers Trust Company ("Bankers Trust") is the investment
adviser ("Adviser") of the Portfolio.
To learn more about the Fund and the Portfolio, investors can obtain a copy of
the Fund's Statement of Additional Information ("SAI"), dated November 30, 1998,
which has been filed with the Securities and Exchange Commission (the "SEC") and
is incorporated herein by this 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
<PAGE>
at 1-800-677-7596. 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).
SHARES OF THE FUND ARE NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, BANKERS TRUST COMPANY, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
AGENCY. AN INVESTMENT IN THE FUND IS SUBJECT TO RISK THAT MAY CAUSE THE VALUE OF
THE INVESTMENT TO FLUCTUATE, AND WHEN THE INVESTMENT IS REDEEMED, THE VALUE MAY
BE HIGHER OR LOWER THAN THE AMOUNT ORIGINALLY INVESTED BY THE INVESTOR.
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.
ICC DISTRIBUTORS, INC.
(Bullet) Two Portland Square(Bullet)
Portland, Maine
(Bullet) 04101
TABLE OF CONTENTS
The Fund.......................................................................3
Who May Invest.................................................................3
Investment Principles and Risks................................................3
Summary of Fund Expenses.......................................................4
The Fund In Detail.............................................................6
Risk Factors: Matching the Fund to Your Investment Needs.......................7
Special Information Concerning the Master-Feeder Fund Structure...............10
Securities and Investment Practices of the Portfolio..........................11
Performance...................................................................14
Management of the Trusts......................................................14
Net Asset Value...............................................................16
Shareholder And Account Policies..............................................17
Dividends and Capital Gain Distributions......................................19
Additional Information about the Trusts.......................................19
<PAGE>
THE FUND
The Fund's investment objective is a high level of current income while seeking
to maintain a stable value per Share. The Fund seeks to achieve its investment
objective by investing all of its net investable assets in the Portfolio. The
Portfolio will seek to achieve this objective by investing in a diversified
portfolio of fixed income securities, money market instruments, futures, options
and other instruments ("Portfolio Securities") and by entering into contracts
("Wrapper Agreements") with financial institutions, such as insurance companies
and banks, that are intended to stabilize the value per Share of the Fund. See
"Risk Factors: Matching the Fund to Your Investment Needs."
There can be no assurance that the Fund will achieve its objective.
WHO MAY INVEST
Shares of the Fund are offered solely to participant-directed employee benefit
plans meeting specified criteria (each a "Plan" and together "Plans"). Shares
are offered to Plans either directly or through vehicles such as bank collective
funds or insurance company separate accounts consisting solely of such Plans.
The Fund is designed for investors seeking preservation and stability of
principal and a level of current income higher than money market mutual funds
over most time periods. The Shares are available to employee benefit plans whose
initial investment equals or exceeds $25 million. Shares are also available to
employee benefit plans which invest in the Fund through an omnibus account or
similar arrangement, if that omnibus account for similar arrangement makes an
initial investment in the Fund of at least $25 million.
The Fund is not in itself a balanced investment plan. Plan participants should
consider their investment objective and tolerance for risk when making an
investment decision. When Shares are redeemed, they may be worth more or less
than what they originally cost, although the nature of the Portfolio's
investments -- particularly the Wrapper Agreements -- are intended by the Fund
to stabilize the value per Share. A Plan offering investments in the Fund must
impose certain restrictions on the ability of a Plan participant to exchange
Shares for similar investment options. See "Account Information."
INVESTMENT PRINCIPLES AND RISKS
The value of most of the Portfolio Securities will fluctuate based upon changes
in domestic or foreign interest rates, the credit quality of the issuer, market
conditions, and other economic and political news. In general, the prices of
Portfolio Securities will rise when interest rates fall, and fall when interest
rates
<PAGE>
rise. The Wrapper Agreements are intended to stabilize the value per Share by
offsetting fluctuations in the value of the Portfolio Securities under certain
conditions. Under most circumstances, the combination of Portfolio Securities
and Wrapper Agreements held by the Portfolio is expected to provide Fund
shareholders with a constant net asset value ("NAV") per Share and a current
rate of return that is higher than most money market mutual funds over most time
periods. However, there can be no guarantee that the Portfolio will maintain a
constant NAV, and consequently that the Fund will be able to maintain a constant
NAV per Share. There is also no guarantee that any Fund shareholder or Plan
participant will realize the same investment return as might be realized by a
direct investment in the Portfolio Securities without the Wrapper Agreements or
that the Fund's rate of return will be higher than that of most money market
mutual funds.
The Portfolio incurs costs in connection with its investment in Wrapper
Agreements which will reduce the Fund's investment return. The Wrapper
Agreements may not insulate the Portfolio from loss if an issuer of Portfolio
Securities defaults on payments of interest or principal. Additionally, an
issuer of a Wrapper Agreement could default on its obligations under the
agreement or the Portfolio might be unable to obtain Wrapper Agreements covering
all of its assets. Either type of default or the inability to obtain Wrapper
Agreements might result in a decline in the value of the Shares. Moreover, in
valuing a Wrapper Agreement, the Board of Trustees of the Portfolio Trust may
determine that such agreement should not be carried by the Portfolio at a value
sufficient to maintain the Portfolio's NAV per Share.
Bankers Trust may use various investment techniques to hedge the Portfolio's
risks, but there is no guarantee that these strategies will work as intended.
See "Risk Factors: Matching the Fund to Your Investment Needs" for more
information.
SUMMARY OF FUND EXPENSES
Annual operating expenses are paid out of the assets of the Portfolio and the
Fund. The Portfolio pays an investment advisory fee and an administrative
services fee to Bankers Trust. The Fund incurs additional administrative
expenses such as maintaining shareholder records and furnishing shareholder
statements. The Fund must also provide semi-annual financial reports.
The following tables are intended to assist investors in understanding the
expenses associated with investing in the Fund. The table provides (i) a summary
of expenses related to purchases and redemptions (sales) of Shares and the
anticipated annual operating expenses of the Fund and the
<PAGE>
Portfolio, in the aggregate, as a percentage of average daily net assets and
(ii) an example illustrating the dollar cost of such expenses on a $1,000
investment in the Fund.
THE TRUSTEES OF THE TRUST BELIEVE THAT THE AGGREGATE EXPENSES OF THE FUND
(INCLUDING ITS PROPORTIONATE SHARE OF THE PORTFOLIO'S EXPENSES) WILL BE LESS
THAN OR APPROXIMATELY EQUAL TO THE EXPENSES THAT THE FUND WOULD INCUR IF THE
TRUST RETAINED THE SERVICES OF AN INVESTMENT ADVISER AND THE ASSETS OF THE FUND
WERE INVESTED DIRECTLY IN PORTFOLIO SECURITIES AND WRAPPER AGREEMENTS.
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge on Purchases None
Maximum Sales Charge on Reinvested Dividends None
Maximum Redemption Fee 2.0%
Shareholder transaction expenses are charges paid when investors buy, redeem or
exchange Shares. Under normal circumstances, redemptions of Shares that are
directed by Plan participants are not subject to a redemption fee. Redemptions
of Shares that are not directed by Plan participants and that are made on less
than twelve months' prior written notice to the Fund are subject to a redemption
fee payable to the Fund of 2% of the proceeds of the redemption. See
"Transactions in Fund Shares."
ANNUAL OPERATING EXPENSES
(as a percentage of the Fund's projected average daily net assets)
Investment advisory fee (after reimbursement or waiver)* 0.20%
12b-1 fee None
Other expenses (after reimbursement or waiver)** 0.35%
Total operating expenses (after reimbursement or waiver) 0.55%
* The Fund does not directly pay an investment advisory fee; the amount shown
reflects the Fund's proportionate share of the Portfolio's investment advisory
fee.
** "Other expenses" include premiums paid for Wrapper Agreements and certain
additional services provided to the Fund and the Portfolio by Bankers Trust,
including a shareholder servicing fee of 0.15%. Wrapper Agreements are contracts
entered into by the Portfolio that are intended to stabilize the value per Share
of the Fund (see "Investment Principles and Risks").
<PAGE>
<TABLE>
<CAPTION>
EXAMPLE One Year Three Years Five Years Ten Years
<S> <C> <C> <C> <C>
An investor would pay
the following expenses on a $1,000 investment assuming (1) 5% annual return and
(2) redemption at the end of each time
period. No redemption fee has been included. $6 $18 $ 31 $69
</TABLE>
The expense table and the example above show the estimated costs and expenses
that an investor will bear directly or indirectly as a shareholder of the Fund.
Bankers Trust has voluntarily agreed to waive a portion of its investment
advisory fee payable by the Portfolio. Without such waiver, the Portfolio's
investment advisory fee would have been 0.35% of its average daily net assets.
Bankers Trust has also voluntarily agreed to waive a portion of its
administration fees and reimburse certain expenses (included in "Other
Expenses") payable by the Portfolio. Without such waiver or reimbursements, the
Portfolio's "Other Expenses" would have been .59%. Bankers Trust may terminate
these voluntary waivers and reimbursements at any time in its sole discretion
without notice to shareholders. In the absence of these waivers, "Total
Operating Expenses" of the Shares would have been .94%. THE EXAMPLE SHOULD NOT
BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES, AND ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN THOSE SHOWN. Moreover, while the example assumes a
5% annual return, actual performance will vary and may result in a return
greater or less than 5%.
Shares of the Fund are subject to shareholder servicing fees in the maximum
amount of 0.15% of the average daily net assets of the Shares. The shareholder
services provided in exchange for these fees may include establishing and
maintaining shareholder and Plan participant accounts, processing purchase and
redemption transactions, arranging for bank wires, performing shareholder
sub-accounting, answering investor/shareholder's inquiries regarding the Fund
and/or its classes, providing periodic statements showing the
investor/shareholder's account balance and those of Plan participants,
transmitting proxy statements, periodic reports, updated prospectuses and other
communications to shareholders and, with respect to meetings of shareholders,
collecting, tabulating and forwarding to the Trust executed proxies and
obtaining such other information and performing such other services as may
reasonably be required.
<PAGE>
Shares of the Fund are sold by ICC Distributors, Inc. ("ICC," or the
"Distributor"). For more information about the Fund's and the Portfolio's
expenses see "Management of the Trusts" and "Net Asset Value." The Fund and
Bankers Trust have authorized one or more brokers to accept on its behalf
purchase and redemption orders. Such brokers are authorized to designate other
intermediaries to accept purchase and redemption orders on the Fund's behalf.
The Fund 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.
As of the date of this Prospectus, the Fund has issued four classes of shares,
and may issue additional classes in the future. The Fund offers each class of
shares by a separate prospectus. Because the expenses vary between classes,
performance will vary with respect to each class. Additional information
concerning each class of shares is available from Bankers Trust, as
Administrator, at 1-800-677-7596.
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 period indicated and has been audited by Ernst & Young LLP, the Fund's
independent auditors, whose report thereon appears in the Fund's Annual Report
which is incorporated by reference. <TABLE> <CAPTION>
Institutional Service Class Shares
For the period
April 1, 1998* through
September 30, 1998
<S><C>
Per Share Operating Performance:
Net Asset Value, Beginning of Period $10.00
------
Income from Investment Operations
Net Investment Income 0.28
Distributions to Shareholders
Net Investment Income (0.28)
------
Net Asset Value, End of Period $10.00
------
Total Investment Return 5.78%**
<PAGE>
Supplemental Data and Ratios:
Net Assets, End of Period (000s omitted) $55,137
Ratios to Average Net Assets:***
Net Investment Income 5.66%**
Net Expenses, Including Expenses
of the PreservationPlus Portfolio 0.55%**
Decrease Reflected in Above Expense
Ratio Due to Absorption of Expenses
by Bankers Trust 0.39%**
</TABLE>
- -----------------
* Commencement of operations
** Annualized
*** Includes Fund share of Portfolio expenses
THE FUND IN DETAIL
INVESTMENT OBJECTIVE AND POLICIES
The Fund seeks to achieve its investment objective by investing all of its net
investable assets in the Portfolio, which has the same investment objective as
the Fund. Since the investment characteristics of the Fund will correspond
directly to those of the Portfolio, the following is a discussion of the various
investments of and techniques employed by the Portfolio. Additional information
about the investment policies of the Portfolio appears in "Risk Factors:
Matching the Fund to Your Investment Needs" herein and in the SAI. There can be
no assurance that the Fund's and the Portfolio's investment objective will be
achieved. The 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 the Master-Feeder Fund Structure" herein.
The Portfolio's investment objective is a high level of current income while
seeking to maintain a stable value per Share. The Portfolio expects to invest at
least 65% of its total assets in fixed income securities ("Fixed Income
Securities") of varying maturities rated, at the time of purchase, in one of the
top three long-
<PAGE>
term rating categories by Standard & Poor's ("S&P"), Moody's Investors Service,
Inc. ("Moody's"), or Duff & Phelps Credit Rating Co., or comparably rated by
another nationally recognized statistical rating organization ("NRSRO"), or, if
not rated by a NRSRO, of comparable quality as determined by Bankers Trust in
its sole discretion.
In addition, the Portfolio will enter into Wrapper Agreements with insurance
companies, banks or other financial institutions ("Wrapper Providers") that are
rated, at the time of purchase, in one of the top two long-term rating
categories by Moody's or S&P. There is no active trading market for Wrapper
Agreements, and none is expected to develop; therefore, they will be considered
illiquid. At the time of purchase, the value of all of the Wrapper Agreements
and any other illiquid securities will not exceed 15% of the Portfolio's net
assets.
The Fixed Income Securities include fixed income securities issued or guaranteed
by the U.S. government, or any agency or instrumentality thereof; publicly or
privately issued U.S. dollar-denominated debt of domestic or foreign entities,
including corporate, sovereign or supranational entities; publicly issued U.S.
dollar denominated asset-backed securities issued by domestic or foreign
entities; mortgage pass-through securities issued by the Government National
Mortgage Association ("GNMA"), the Federal Home Loan Mortgage Corporation
("FHLMC") or the Federal National Mortgage Association ("FNMA"); mortgage
pass-through securities issued by non-government entities such as banks,
mortgage lenders, or other financial institutions, including private label
mortgage pass-through securities and whole loans; collateralized mortgage
obligations ("CMOs") and real estate mortgage investment conduits ("REMICs"),
which are mortgage-backed debt instruments that make payments of principal and
interest at a variety of intervals and are collateralized by any of the
aforementioned mortgage pass-through securities or whole loans; and obligations
issued or guaranteed, or backed by securities issued or guaranteed by, the U.S.
government, or any of its agencies or instrumentalities, including Certificates
of Accrual Treasury Securities ("CATS"), Treasury Income Growth Receipts
("TIGRs"), and Treasury Receipts ("TRs") and zero coupon securities (securities
consisting solely of the principal or interest component of a U.S. Treasury
bond).
The Portfolio Securities purchased by the Portfolio also include short-term
investments rated, at the time of purchase, in one of the top two short-term
rating categories by an NRSRO or, if unrated, of comparable quality in the
opinion of the Adviser, including commercial paper and time deposits,
certificates of deposit, bankers' acceptances and other instruments of foreign
and domestic banks and thrift institutions, and shares of money market mutual
funds. The Portfolio may invest up to 35% of its total assets in such short-term
investments for purposes of liquidity and up to 100% of its total assets in such
<PAGE>
instruments for temporary defensive purposes. The Portfolio may also invest in
and utilize the following investments and investment techniques and practices:
Rule 144A securities (as defined in "Securities and Investment Practices of the
Portfolio"), when-issued and delayed delivery securities, repurchase agreements,
reverse repurchase agreements and dollar rolls, and options and futures
contracts. See "Risk Factors: Matching the Fund to Your Investment Needs" herein
and in the SAI for more information.
In selecting securities for the Portfolio, the Adviser attempts to maintain an
average portfolio duration of the Portfolio Securities within a range of 2.5 to
4.5 years. Duration is a measure of the expected life of a Fixed Income Security
on a present value basis which incorporates the security's yield, coupon
interest payments, final maturity and call features into a single measure.
RISK FACTORS: MATCHING THE FUND TO YOUR INVESTMENT NEEDS
The following pages contain more detailed information about types of instruments
in which the Portfolio may invest and strategies the Adviser may employ in
pursuit of the Portfolio's investment objective. A summary of the risks and
restrictions associated with these investments and investment practices is
included as well.
The Adviser may not buy all of these instruments or use all of these techniques
to the full extent permitted unless it believes that doing so will help the
Portfolio achieve its objective. Current holdings and investment strategies will
be described in the financial reports of the Fund and the Portfolio, which will
be sent to Fund shareholders twice a year.
RISKS OF INVESTING IN FIXED INCOME SECURITIES. All fixed income investments have
exposure to three types of risks. Credit risk is the possibility that the issuer
of a Fixed Income Security will fail to make timely payments of either interest
or principal to the Portfolio. Interest rate risk is the potential for
fluctuations in the prices of Fixed Income Securities due to changing interest
rates. Income risk is the potential for decline in the Portfolio's income due to
the investment or reinvestment of assets in Fixed Income Securities when market
interest rates are falling.
Although there is no assurance that it will achieve its objective, the Portfolio
attempts to enhance yield while minimizing these risks. If an issuer of a Fixed
Income Security or a Wrapper Provider becomes financially impaired, it may
default on its obligations and the Portfolio's interest income may be reduced or
the Portfolio may incur a loss of principal. This is an example of credit risk.
In order to minimize credit risk, the Portfolio's assets are allocated among a
diversified group of issuers. Credit analysis is applied to every security and
<PAGE>
Wrapper Provider selected for the Portfolio. Once purchased, a security and, in
the case of a Wrapper Agreement, the Wrapper Provider is monitored regularly by
Bankers Trust for maintenance of adequate credit characteristics. In the event
that the rating of a security or Wrapper Provider is downgraded by one or more
NRSRO, the Portfolio may elect to retain the security or applicable Wrapper
Agreement. However, some Wrapper Agreements may require that Fixed Income
Securities that fall below investment grade be liquidated within a set time
period, typically within one year or less. The Portfolio may elect not to cover
with Wrapper Agreements any Fixed Income Securities with a remaining maturity of
60 days or less and any cash or short term investments.
When interest rates rise, Fixed Income Security prices generally decline. When
interest rates fall, Fixed Income Security prices generally increase. Generally,
the longer the maturity of the Fixed Income Security, the higher its yield,
although longer-term Fixed Income Securities tend to offer less price stability
in response to changes in interest rates than do shorter-term investments.
Therefore, portfolios with shorter average maturities tend to have less risk and
lower returns than portfolios with longer average maturities. This is an example
of interest rate risk. In order to help maintain an average portfolio duration
of 2.5 to 4.5 years, the Portfolio will invest primarily in Fixed Income
Securities of short- to intermediate-term maturities. This will help to minimize
interest rate risk. In addition, unlike most traditional fixed income
portfolios, the Portfolio purchases Wrapper Agreements that should offset
substantially all of the price fluctuations typically associated with
longer-term Fixed Income Securities.
It is important to note the distinction between the Portfolio and short-term
investments such as money market funds. The securities held by the Portfolio
have a longer average maturity than those of money market funds. Because a money
market fund has a shorter average maturity, its yield will track the direction
of current market rates of return more closely than the Portfolio. For example,
in a rising interest rate environment, money market yields may rise more quickly
than will the Portfolio's. In a falling interest rate environment, money market
yields may fall more quickly than the Portfolio's. Over the long-term, however,
intermediate and long-term Fixed Income Securities such as those purchased by
the Portfolio have historically offered higher yields than short-term
investments (i.e., money market funds).
RISKS OF WRAPPER AGREEMENTS. Each Wrapper Agreement obligates the Wrapper
Provider to maintain the "Book Value" of a portion of the Portfolio's assets
("Covered Assets") up to a specified maximum dollar amount, upon the occurrence
of certain specified events. The Book Value of the Covered Assets is their
purchase price (i) plus interest on the Covered Assets at a rate specified in
the Wrapper Agreement ("Crediting Rate"), and (ii) less an adjustment to reflect
any defaulted securities. The Crediting Rate used in computing Book Value is
<PAGE>
calculated by a formula specified in the Wrapper Agreement and is adjusted
periodically. In the case of Wrapper Agreements purchased by the Portfolio, the
Crediting Rate is the actual interest earned on the Covered Assets, or an
index-based approximation thereof, plus or minus an adjustment for an amount
receivable from or payable to the Wrapper Provider based on fluctuations in the
market value of the Covered Assets. As a result, while the Crediting Rate will
generally reflect movements in the market rates of interest, it may at any time
be more or less than these rates or the actual interest income earned on the
Covered Assets. The Crediting Rate may also be impacted by defaulted securities
and by increases and decreases of the amount of Covered Assets as a result of
contributions and withdrawals tied to the sale and redemption of Shares.
Furthermore, the premiums due Wrapper Providers in connection with the
Portfolio's investments in Wrapper Agreements are offset against and thus reduce
the Crediting Rate. These premiums are generally paid quarterly. In no event
will the Crediting Rate fall below zero percent under the Wrapper Agreements
entered into by the Portfolio.
Under the terms of a typical Wrapper Agreement, if the market value (plus
accrued interest on the underlying securities) of the Covered Assets is less
than their Book Value at the time the Covered Assets are liquidated in order to
provide proceeds for withdrawals of Portfolio interests resulting from
redemptions of Shares by Plan participants, the Wrapper Provider becomes
obligated to pay to the Portfolio the difference. Conversely, the Portfolio
becomes obligated to make a payment to the Wrapper Provider if it is necessary
for the Portfolio to liquidate Covered Assets at a price above their Book Value
in order to make withdrawal payments. (Withdrawals generally will arise when the
Fund must pay shareholders who redeem their Shares.) Because it is anticipated
that each Wrapper Agreement will cover all Covered Assets up to a specified
dollar amount, if more than one Wrapper Provider becomes obligated to pay to the
Portfolio the difference between Book Value and market value (plus accrued
interest on the underlying securities), each Wrapper Provider will be obligated
to pay a pro-rata amount in proportion to the maximum dollar amount of coverage
provided. Thus, the Portfolio will not have the option of choosing which Wrapper
Agreement to draw upon in any such payment situation.
The terms of the Wrapper Agreements vary concerning when these payments must
actually be made between the Portfolio and the Wrapper Provider. In some cases,
payments may be due upon disposition of the Covered Assets; other Wrapper
Agreements provide for settlement only upon termination of the Wrapper Agreement
or total liquidation of the Covered Assets. A Wrapper Provider's obligation to
make payments to the Portfolio may be subject to prior notice requirements for
certain types of withdrawals from the Portfolio. For example, the Wrapper
Agreement may require that one year's notice be provided to obtain Book Value
payments with respect to withdrawals to provide liquidity
<PAGE>
for Fund redemptions that are not directed by Plan participants. The Portfolio
does not anticipate that it will be required to liquidate Covered Assets for the
purpose of paying such withdrawals before any such notice period has expired.
However, in the unlikely event that this occurs, the NAV of the Portfolio, and
hence of the Shares, may be reduced. Additionally, a Wrapper Provider's
obligation to make payments for Plan withdrawals after twelve months' prior
notice (as opposed to those directed by Plan participants) may require
adjustments to the Crediting Rate and increases in the Portfolio's holdings of
short term investments, which might adversely affect the return of the Portfolio
and the Fund. Please see discussion of "Liquidity Reserve" herein.
The Fund expects that the use of Wrapper Agreements by the Portfolio will under
most circumstances permit the Fund to maintain a constant NAV per Share and to
pay dividends that will generally reflect over time both the interest income of,
and market gains and losses on, the Covered Assets held by the Portfolio less
the expenses of the Fund and the Portfolio. However, there can be no guarantee
that the Fund will maintain a constant NAV per Share or that any Fund
shareholder or Plan participant will realize the same investment return as might
be realized by investing directly in the Portfolio assets other than the Wrapper
Agreements. For example, a default by the issuer of a Portfolio Security or a
Wrapper Provider on its obligations might result in a decrease in the value of
the Portfolio assets and, consequently, the Shares. The Wrapper Agreements
generally do not protect the Portfolio from loss if an issuer of Portfolio
Securities defaults on payments of interest or principal. Additionally, a Fund
shareholder may realize more or less than the actual investment return on the
Portfolio Securities depending upon the timing of the shareholder's purchases
and redemption of Shares, as well as those of other shareholders. Furthermore,
there can be no assurance that the Portfolio will be able at all times to obtain
Wrapper Agreements. Although it is the current intention of the Portfolio to
obtain such agreements covering all of its assets (with the exceptions noted),
the Portfolio may elect not to cover some or all of its assets with Wrapper
Agreements should Wrapper Agreements become unavailable or should other
conditions such as cost, in Bankers Trust's sole discretion, render their
purchase inadvisable.
If, in the event of a default of a Wrapper Provider, the Portfolio were unable
to obtain a replacement Wrapper Agreement, participants redeeming Shares might
experience losses if the market value of the Portfolio's assets no longer
covered by the Wrapper Agreement is below Book Value. The combination of the
default of a Wrapper Provider and an inability to obtain a replacement agreement
could render the Portfolio and the Fund unable to achieve their investment
objective of maintaining a stable NAV per Share. If the Board of Trustees of the
Portfolio Trust (the "Portfolio Trust Board") determines that a Wrapper Provider
is unable to make payments when due, that Board may assign a fair value to the
Wrapper Agreement that is less than the difference between the Book Value and
the
<PAGE>
market value (plus accrued interest on the underlying securities) of the
applicable Covered Assets and the Portfolio might be unable to maintain NAV
stability.
Some Wrapper Agreements require that the Portfolio maintain a specified
percentage of its total assets in short-term investments ("Liquidity Reserve").
These short-term investments must be used for the payment of withdrawals from
the Portfolio and Portfolio expenses. To the extent the Liquidity Reserve falls
below the specified percentage of total assets, the Portfolio is obligated to
direct all net cash flow to the replenishment of the Liquidity Reserve. The
obligation to maintain a Liquidity Reserve may result in a lower return for the
Portfolio and the Fund than if these funds were invested in longer-term Fixed
Income Securities. The Liquidity Reserve required by all Wrapper Agreements is
not expected to exceed 20% of the Portfolio's total assets. However, the
Liquidity Reserve amount may be required to be increased above this limit as a
result of anticipated Plan redemptions within one year.
Wrapper Agreements also require that the Covered Assets have a specified
duration or maturity, consist of specified types of securities or be of a
specified investment quality. The Portfolio will purchase Wrapper Agreements
whose criteria in this regard are consistent with the Portfolio's (and the
Fund's) investment objective and policies as described in this Prospectus.
Wrapper Agreements may also require the disposition of securities whose ratings
are downgraded below a certain level. This may limit the Portfolio's ability to
hold such downgraded securities. Please see the SAI for additional information
concerning Wrapper Agreements.
DERIVATIVES. The Portfolio may invest in various instruments, including the
Wrapper Agreements, that are commonly known as "derivatives". Generally, a
derivative is a financial arrangement the value of which is based on, or
"derived" from, a traditional security, asset or market index. Some derivatives
such as mortgage-related and other asset-backed securities are in many respects
like any other investments, although they may be more volatile or less liquid
than more traditional debt securities. There are, in fact, many different types
of derivatives and many different ways to use them. There are a range of risks
associated with those uses. Futures contracts and options are commonly used for
traditional hedging purposes to attempt to protect an investor from exposure to
changing interest rates, securities prices or currency exchange rates and for
cash management purposes as a low cost method of gaining exposure to a
particular securities market without investing directly in those securities.
However, some derivatives are used for leverage, which tends to magnify the
effect of an instrument's price changes as market conditions change. Leverage
involves the use of a small amount of money to control a large amount of
financial assets and can, in some circumstances, lead to significant losses.
Bankers Trust uses
<PAGE>
derivatives only in circumstances where it believes they offer the most economic
means of improving the risk/reward profile of the Portfolio. Derivatives will
not be used to increase portfolio risk above the level that could be achieved
using only traditional investment securities or to acquire exposure to changes
in the value of assets or indexes that by themselves would not be purchased for
the Portfolio. The use of derivatives for non-hedging purposes may be considered
speculative. A further description of the derivatives that the Portfolio may use
and some of their associated risks is found in "Securities and Investment
Practices of the Portfolio."
PORTFOLIO TURNOVER. The annual portfolio turnover rate measures the frequency
that the Portfolio sells and replaces the value of its securities within one
year. A portfolio turnover rate of 100% means that the Portfolio sold and
purchased investments equal to the average value of the Portfolio for a
particular time period. High turnover can increase the Fund's transaction costs,
thereby lowering its returns, and may increase your tax liability. The portfolio
manager does not have a target portfolio turnover rate. The turnover will depend
on the portfolio manager's assessment of how often to trade, in light of market
conditions and the fund objective.
YEAR 2000 MATTERS. Like other mutual funds, financial and business organizations
and individuals around the world, the Fund could be adversely affected if the
computer systems used by Bankers Trust and other service providers do not
properly process and calculate date-related information and data from and after
January 1, 2000. This is commonly known as the "Year 2000 Problem." Bankers
Trust is taking steps that it believes are reasonably designed to address the
Year 2000 Problem with respect to computer systems that it uses and to obtain
reasonable assurances that comparable steps are being taken by the Fund's other
major service providers. At this time, however, there can be no assurance that
these steps will be sufficient to avoid any adverse impact to the Fund nor can
there be any assurance that the Year 2000 Problem will not have an adverse
effect on the companies whose securities are held by the Fund or on global
markets or economies, generally.
SPECIAL INFORMATION CONCERNING THE MASTER-FEEDER FUND STRUCTURE
Unlike other mutual funds that directly acquire and manage their own portfolio
securities, the Fund seeks to achieve its investment objective by investing all
of its net investable assets in the Portfolio, a separate subtrust of a
registered investment company with the same investment objective as the Fund.
Therefore, a Fund shareholder's interest in the Portfolio's assets is indirect.
In addition to selling a beneficial interest to the Fund, the Portfolio may sell
beneficial interests
<PAGE>
to other mutual funds or institutional investors. Such investors will invest in
the Portfolio on the same terms and conditions and will pay a proportionate
share of the Portfolio's expenses. However, the other investors investing in the
Portfolio are not required to sell their shares or other interests at the same
public offering price as the Fund, due to variations in sales commissions and
other operating expenses. Therefore, investors in the Fund should be aware that
these differences may result in differences in returns experienced by investors
in the different entities that invest in the Portfolio. Such differences in
returns are also present in other mutual fund structures. Information concerning
other holders of interests in the Portfolio is available from Bankers Trust, as
the Administrator, at 1-800-677-7596.
The master-feeder fund structure is relatively complex, so shareholders should
carefully consider this investment approach. Smaller investors in the Portfolio
may be materially affected by the actions of larger investors in the Portfolio.
For example, if a large investor withdraws from the Portfolio, the remaining
investors may experience higher pro rata operating expenses, thereby producing
lower returns (however, this possibility exists as well for traditionally
structured funds that have large investors). Additionally, the Portfolio may
become less diverse, resulting in increased portfolio risk. Also, investors with
a greater pro rata ownership in the Portfolio could have effective voting
control of its operations. Except as permitted by the SEC, whenever the Trust is
requested to vote on matters pertaining to the Portfolio, the Trust will hold a
meeting of shareholders of the Fund and will cast all of its votes in the same
proportion as the votes of the Fund's shareholders. Fund shareholders who do not
vote will not affect the Trust's votes on the Portfolio's matters; the Trust's
votes representing Fund shareholders not voting will be voted by the Trustees or
officers of the Trust in the same proportion as the Fund shareholders who do, in
fact, vote. Certain changes in the Portfolio's investment objective, policies or
restrictions may require the Fund to withdraw its interest in the Portfolio. Any
such withdrawal could result in a distribution "in kind" of Portfolio assets (as
opposed to a cash distribution from the Portfolio). If securities are
distributed, the Fund could incur brokerage, tax or other charges in converting
the securities to cash. In addition, the distribution in kind may result in a
less diversified portfolio of investments or adversely affect the liquidity of
the Fund. Notwithstanding the above, there are other means for meeting
redemption requests, such as borrowing. The Fund may withdraw its investment
from the Portfolio at any time, if the Board of Trustees of the Trust (the
"Trust Board") determines that it is in the best interests of the shareholders
of the Fund to do so. Upon any such withdrawal, the Trust Board would consider
what action might be taken, including the investment of all the assets of the
Fund in another pooled investment entity having the same investment objective as
the Fund or the retaining of an investment adviser to manage the Fund's assets
in accordance with the investment policies described herein with respect to the
Portfolio.
<PAGE>
The Fund's investment objective is not a fundamental policy and may be changed
upon notice to, but without the need for approval of, its shareholders. If there
is a change in the Fund's investment objective, its shareholders should consider
whether the Fund remains an appropriate investment in light of their
then-current needs. The investment objective of the Portfolio also is not a
fundamental policy. Shareholders of the Fund will receive 30 days' prior written
notice with respect to any change in the investment objective of the Fund or the
Portfolio. See "Investment Restrictions" in the SAI for a description of the
fundamental policies of the Portfolio that cannot be changed without approval by
"the vote of a majority of the outstanding voting securities" (as defined in the
Investment Company Act of 1940 (the "1940 Act")) of the Portfolio.
SECURITIES AND INVESTMENT PRACTICES OF THE PORTFOLIO
U.S. GOVERNMENT SECURITIES. U.S. government securities are high-quality debt
securities issued or guaranteed by the U.S. Treasury or by an agency or
instrumentality of the U.S. government. Not all U.S. government securities are
backed by the full faith and credit of the United States. For example,
securities issued by the Farm Credit Banks or by the FNMA are supported by the
instrumentality's right to borrow money from the U.S. Treasury under certain
circumstances. However, securities issued by certain other U.S. agencies or
instrumentalities are supported only by the credit of the entity that issued
them.
OTHER U.S. DOLLAR-DENOMINATED FIXED INCOME SECURITIES. Bonds and other debt
instruments are used by issuers to borrow money from investors. The issuer pays
the investor a fixed or variable rate of interest and must repay the amount
borrowed at maturity. Some debt securities, such as zero coupon bonds, do not
pay current interest but are purchased at a discount from their face values.
Debt securities, loans and other direct debt have varying degrees of quality and
varying levels of sensitivity to changes in interest rates. Longer-term bonds
are generally more sensitive to interest rate changes than short-term bonds.
U.S. DOLLAR-DENOMINATED SOVEREIGN AND SUPRANATIONAL FIXED INCOME SECURITIES.
Debt instruments issued or guaranteed by foreign governments, agencies and
supranational organizations ("sovereign debt obligations"), especially sovereign
debt obligations of developing countries, may involve a high degree of risk. The
issuer of the obligation or the governmental authorities that control the
repayment of the debt may be unable or unwilling to repay principal and interest
when due and may require renegotiation or rescheduling of debt payments. In
addition, prospects for repayment of principal and interest may depend on
political as well as economic factors.
<PAGE>
MORTGAGE-BACKED SECURITIES. The Portfolio may purchase mortgage-backed
securities issued by the U.S. government, its agencies or instrumentalities and
non-governmental entities such as banks, mortgage lenders or other financial
institutions. Mortgage-backed securities include mortgage pass-through
securities, mortgage-backed bonds and mortgage pay-through securities. A
mortgage pass-through security is a pro rata interest in a pool of mortgages
where the cash flow generated from the mortgage collateral is passed through to
the security holder. A mortgage-backed bond is a general obligation of the
issuer, payable out of the issuer's general funds and additionally secured by a
first lien on a pool of mortgages. Mortgage pay-through securities exhibit
characteristics of both pass-through and mortgage-backed bonds. The mortgage
pass-through securities issued by non-governmental entities such as banks,
mortgage lenders or other financial institutions in which the Portfolio may
invest include private label mortgage pass-through securities and whole loans.
Mortgage-backed securities also include other debt obligations secured by
mortgages on commercial real estate or residential properties. Other types of
mortgage-backed securities will likely be developed in the future, and the
Portfolio may invest in them if Bankers Trust determines they are consistent
with the Portfolio's investment objective and policies.
Unlike ordinary Fixed Income Securities, which generally pay a fixed rate of
interest and return principal upon maturity, mortgage-backed securities repay
both interest income and principal as part of their periodic payments. Because
the mortgages underlying mortgage-backed certificates can be prepaid at any time
by homeowners or corporate borrowers, mortgage-backed securities give rise to
certain unique "pre-payment" risks. Prepayment risk or call risk is the
likelihood that, during periods of falling interest rates, securities with high
stated interest rates will be prepaid (or "called") prior to maturity, requiring
the Portfolio to invest the proceeds at generally lower interest rates.
COLLATERALIZED MORTGAGE OBLIGATIONS. CMOs are pay-through securities
collateralized by mortgages or mortgage-backed securities. CMOs are issued in
classes and series that have different maturities and often are retired in
sequence. The issuer of a series of CMOs may elect to be treated as a REMIC.
ASSET-BACKED SECURITIES. Asset-backed securities have structural characteristics
similar to mortgage-backed securities. However, the underlying assets are not
first lien mortgage loans or interests therein but include assets such as motor
vehicle installment sale contracts, other installment sale contracts, home
equity loans, leases of various types of real and personal property, and
receivables from revolving credit (credit card) agreements. Such assets are
securitized through the use of trusts or special purpose corporations. Payments
or distributions of principal and interest on asset-backed securities may be
guaranteed up to certain amounts and for a certain time period by a letter of
<PAGE>
credit or a pool insurance policy issued by a financial institution unaffiliated
with the issuer, or other credit enhancements may be present.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities do not have the benefit
of the same type of security interest in the related collateral. Credit card
receivables are generally unsecured, and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, many of which
give such debtors the right to avoid payment of certain amounts owed on the
credit cards, thereby reducing the balance due. There is the risk in connection
with automobile receivables that recoveries on repossessed collateral may not,
in some cases, be available to support payments on those securities.
U.S. DOLLAR-DENOMINATED FOREIGN SECURITIES. The Portfolio may invest a portion
of its assets in the dollar-denominated debt securities of foreign companies.
Investing in the securities of foreign companies involves more risks than
investing in securities of U.S. companies. Their value is subject to economic
and political developments in the countries where the companies operate and to
changes in foreign currency values. Values may also be affected by foreign tax
laws, changes in foreign economic or monetary policies, exchange control
regulations and regulations involving prohibitions on the repatriation of
foreign currencies.
In general, less information may be available about foreign companies than about
U.S. companies, and foreign companies are generally not subject to the same
accounting, auditing and financial reporting standards as are U.S. companies.
Foreign securities markets may be less liquid and subject to less regulation
than the U.S. securities markets. The costs of investing outside the United
States frequently are higher than those in the United States. These costs
include relatively higher brokerage commissions and foreign custody expenses.
ZERO COUPON SECURITIES. Zero Coupon Securities, including CATS, TIGRs and TRs,
are the separate income or principal components of a debt instrument. These
involve risks that are similar to those of other debt securities, although they
may be more volatile, and the value of certain zero coupon securities moves in
the same direction as interest rates. Zero coupon bonds do not make regular
interest payments.
RULE 144A SECURITIES. Rule 144A Securities are securities that are not
registered for sale under the federal securities laws but can be resold to
institutions pursuant to Rule 144A under the Securities Act of 1933. Provided
that a dealer or institutional trading market in such securities exists, these
restricted securities are treated as exempt from the Portfolio's 15% limit on
illiquid securities. Under the supervision of the Portfolio Trust Board, Bankers
<PAGE>
Trust determines the liquidity of restricted securities; and through reports
from Bankers Trust, the Portfolio Trust Board monitors trading activity in
restricted securities. If institutional trading in restricted securities were to
decline, the liquidity of the Portfolio could be adversely affected.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Portfolio may purchase
securities on a when-issued or delayed delivery basis. Delivery of and payment
for these securities may take place as late as a month or more after the date of
the purchase commitment. The value of these securities is subject to market
fluctuations during this period, and no income accrues to the Portfolio until
settlement takes place.
REPURCHASE AGREEMENTS. In a repurchase agreement, the Portfolio buys a security
at one price and simultaneously agrees to sell it back to the seller on a
specific date and at a higher price reflecting a market rate of interest
unrelated to the coupon rate or maturity of the underlying security. Delays or
losses could result if the other party to the agreement defaults or becomes
insolvent.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS. In a reverse repurchase
agreement, the Portfolio temporarily transfers possession of a portfolio
instrument to another party in return for cash. This could increase the risk of
fluctuation in the Fund's yield or in the market value of its interest in the
Portfolio. In a dollar roll, the Portfolio sells mortgage-backed or other
securities for delivery in the current month and simultaneously contracts to
purchase substantially similar securities on a specified future date. Reverse
repurchase agreements and dollar rolls are forms of borrowing and will be
counted towards the Portfolio's borrowing restrictions. See "Borrowing" on the
following pages and in the SAI. Wrapper Agreements would cover the cash proceeds
of such transactions but not the portfolio instruments transferred to another
party until possession of such instruments is returned to the Portfolio.
SHORT-TERM INVESTMENTS. The Portfolio's assets may be invested in high quality
short-term investments with remaining maturities of 397 days or less to maintain
the Liquidity Reserve, to meet anticipated redemptions and expenses for
day-to-day operating purposes and when, in Bankers Trust's opinion, it is
advisable to adopt a temporary defensive position because of unusual and adverse
conditions affecting the respective markets.
BORROWING. The Portfolio will not borrow money (including through reverse
repurchase agreements or dollar roll transactions) for any purpose in excess of
5% of its total assets, except that it may borrow for temporary or emergency
purposes up to 1/3 of its total assets. Under the 1940 Act, the Portfolio is
required to maintain continuous asset coverage of 300% with respect to such
borrowings and to sell (within three days) sufficient portfolio holdings to
restore
<PAGE>
such coverage if it should decline to less than 300% due to market fluctuations
or otherwise, even if such liquidation of the Portfolio's holdings may be
disadvantageous from an investment standpoint.
Leveraging by means of borrowing may exaggerate the effect of any increase or
decrease in the value of the Portfolio's securities and the Fund's NAV per
Share, and money borrowed by the Portfolio will be subject to interest and other
costs (which may include commitment fees and/or the cost of maintaining minimum
average balances) that may exceed the income received from the securities
purchased with the borrowed funds. It is not the intention of Bankers Trust to
use leverage as a normal practice in the investment of the Portfolio's assets.
HEDGING STRATEGIES. The Portfolio may use certain strategies designed to adjust
the overall risk of its investment portfolio. These "hedging" strategies involve
derivative contracts, including U.S. Treasury and Eurodollar futures contracts
and exchange-traded put and call options on such futures contracts. New
financial products and risk management techniques continue to be developed and
may be used if consistent with the Portfolio's investment objective and
policies. Among other purposes, these hedging strategies may be used to
effectively maintain a desired portfolio duration or to protect against market
risk should the Portfolio change its investments among different types of Fixed
Income Securities. In this respect, these hedging strategies are designed for
different purposes than the investments in Wrapper Agreements. The SAI contains
further information on these strategies.
The Portfolio might not use any hedging strategies, and there can be no
assurance that any strategy used will succeed. If the Adviser is incorrect in
its judgment on market values, interest rates or other economic factors in using
a hedging strategy, the Portfolio may have lower net income and a net loss on
the investment. Each of these strategies involves certain risks, which include:
(Bullet) the fact that the skills needed to use hedging instruments are
different from those needed to select securities for the Portfolio;
(Bullet) the possibility of imperfect correlation, or even no correlation,
between the price movements of hedging instruments and price movements of the
securities or currencies being hedged;
(Bullet) possible constraints placed on the Portfolio's ability to purchase or
sell portfolio investments at advantageous times due to the need for the
Portfolio to maintain "cover" or to segregate securities; and
(Bullet) the possibility that the Portfolio is unable to close out or liquidate
its hedged position.
<PAGE>
ASSET COVERAGE. To assure that the Portfolio's use of futures contracts and
related options, as well as when-issued and delayed delivery securities, are not
used to achieve investment leverage, the Portfolio will cover such transactions,
as required under applicable interpretations of the SEC, either by owning the
underlying securities or by segregating liquid securities with the Portfolio's
custodian (Bankers Trust) in an amount at all times equal to or exceeding the
Portfolio's commitment with respect to these instruments or contracts. Assets
that are segregated for purposes of providing cover need not be physically
segregated in a separate account provided that the custodian notes on its books
that such assets are segregated. The Portfolio will also cover its use of
Wrapper Agreements to the extent required to avoid the creation of a "senior
security" (as defined in the 1940 Act) in connection with its use of such
agreements.
PERFORMANCE
The Fund's performance may be used from time to time in advertisements,
shareholders reports or other communications to shareholders or prospective
shareholders. Performance information may include investment results and/or
comparisons of its investment results to the IBC Averages, Lipper Averages, an
appropriate guaranteed interest contract ("GIC") average, or other various
unmanaged indices or results of other mutual funds or investment or saving
vehicles. The Portfolio's strategies, holdings and performance will be detailed
twice a year in the Fund's financial reports, which are sent to all Fund
shareholders. From time to time, the Shares' ranking may be quoted from various
sources, such as Lipper Analytical Services, Inc., Value Line, Inc. and
Morningstar, Inc.
Mutual fund performance is commonly measured as total return and/or yield. The
performance of a class of shares is affected by its expenses and those of the
Portfolio.
EXPLANATION OF TERMS
TOTAL RETURN is the change in value of an investment in the Shares over a given
period, assuming reinvestment of any dividends and capital gain distributions. A
CUMULATIVE total return reflects actual performance over a stated period of
time. An AVERAGE annual total return is a hypothetical rate of return that, if
achieved annually, would have produced the same cumulative total return if
performance had been constant over the entire period. Average annual total
return calculations smooth out variations in performance; they are not the same
as actual year-by-year results. Average annual total returns covering periods of
less than one year assume that performance will remain constant for the rest of
the year.
<PAGE>
YIELD refers to the income generated by an investment in the Shares over a given
period of time, expressed as an annual percentage rate. Yields are calculated
according to a standard that is required for all stock and bond funds. Because
this differs from other accounting methods, the quoted yield may not equal the
income actually paid to shareholders.
Unlike some bank deposits or other investments that pay a fixed yield for a
stated period of time, the total return of the Shares will vary depending upon
interest rates, the current market value of the Portfolio Securities and the
Wrapper Agreements and changes in the expenses of the Shares and the Portfolio.
In addition, during certain periods for which total return may be provided,
Bankers Trust may have voluntarily agreed to waive portions of its fees, or to
reimburse certain operating expenses of the Fund or the Portfolio, on a
month-to-month basis. Such waivers will have the effect of increasing the Fund's
net income (and therefore its yield and total return) during the period such
waivers are in effect.
TOTAL RETURNS AND YIELDS ARE BASED ON PAST RESULTS AND ARE NOT AN INDICATION OF
FUTURE PERFORMANCE.
MANAGEMENT OF THE TRUSTS
BOARDS OF TRUSTEES
The Trust and the Portfolio Trust (collectively the "Trusts") are each governed
by a Board of Trustees that is responsible for protecting the interests of
investors. A majority of the Trustees who are not "interested persons" (as
defined in the 1940 Act) of either Trust have adopted written procedures
reasonably appropriate to deal with potential conflicts of interest arising from
the fact that some of the same individuals may be Trustees of both Trusts, up to
and including creating separate boards of trustees. See "Management of the
Trusts" in the SAI for more information with respect to the Trustees and
officers of the Trusts.
INVESTMENT ADVISER
The Fund has not retained the services of an investment adviser because it seeks
to achieve its investment objective by investing all of its net investable
assets in the Portfolio. The Portfolio has retained the services of Bankers
Trust as its investment adviser pursuant to an Investment Advisory Agreement
between the Portfolio Trust and Bankers Trust dated April 28, 1993 (the
"Investment Advisory Agreement").
BANKERS TRUST COMPANY AND ITS AFFILIATES
<PAGE>
Bankers Trust Company, a New York banking corporation with principal offices at
130 Liberty Street ("One Bankers Trust Plaza"), New York, New York 10006, is a
wholly owned subsidiary of Bankers Trust New York Corporation. Bankers Trust
conducts a variety of general banking and trust activities and is a major
wholesale supplier of financial services to the international and domestic
institutional market.
As of September 30, 1998, Bankers Trust Corporation was the seventh largest bank
holding company in the United States with total assets of over $150 billion.
Bankers Trust is a worldwide financial services firmdedicated 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. Bankers Trust is
one of the nation's largest and most experienced investment managers, with over
$350 billion in assets under management globally. The scope of Bankers Trust's
investment management capability is unique due to its leadership positions in
both active and passive quantitative management and its presence in major equity
and fixed income markets around the world. Bankers Trust's officers have had
extensive experience in managing investment portfolios having objectives similar
to those of the Fund and the Portfolio. Bankers Trust has more than 50 years of
experience managing retirement assets for the nation's largest corporations and
institutions.
Bankers Trust, subject to the supervision and direction of the Portfolio Trust's
Board, manages the Portfolio in accordance with the Portfolio's investment
objective and stated investment policies, makes investment decisions for the
Portfolio, places orders to purchase and sell securities and other financial
instruments on behalf of the Portfolio and employs professional investment
managers and securities analysts who provide research services to the Portfolio.
Bankers Trust may utilize the expertise of any of its worldwide subsidiaries and
affiliates to assist it in its role as investment adviser. All orders for
investment transactions on behalf of the Portfolio are placed by Bankers Trust
with broker-dealers and other financial intermediaries that it selects,
including those affiliated with Bankers Trust. A Bankers Trust affiliate will be
used in connection with a purchase or sale of an investment for the Portfolio
only if Bankers Trust believes that the affiliate's charge for the transaction
does not exceed usual and customary levels. The Portfolio will not invest in
obligations, including Wrapper Agreements, for which Bankers Trust or any of its
affiliates is the ultimate obligor or accepting bank. The Portfolio may,
however, invest in the obligations of correspondents and customers of Bankers
Trust.
<PAGE>
The Investment Advisory Agreement provides for the Portfolio Trust to pay
Bankers Trust a fee, accrued daily and paid monthly, of 0.35% per year of the
average daily net assets of the Portfolio. Bankers Trust has indicated that it
will voluntarily waive all but 0.20% of this fee. 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 Trusts described in
this Prospectus and the SAI without violation of the Glass-Steagall Act or other
applicable banking laws or regulations. State laws on this issue may differ from
the interpretations of relevant federal law, and banks and financial
institutions may be required to register as dealers pursuant to state securities
law.
PORTFOLIO MANAGEMENT
Eric Kirsch (CFA), a Managing Director of Bankers Trust, has been responsible
for the day-to-day investment management of the Portfolio since its inception.
Mr. Kirsch heads the stable value investment group of Bankers Trust's Global
Investment Management business. In this capacity, he manages stable value
portfolios and coordinates fixed income portfolio management and trading
functions with regards to these portfolios' investments. He joined Bankers Trust
in 1980.
Louis R. D'Arienzo, a Vice President and Portfolio Manager of the structured
fixed income group at Bankers Trust, has managed the Fixed Income Securities of
the Portfolio since its inception. Mr. D'Arienzo has 17 years of trading and
investment experience in structured portfolios and quantitative analysis of
fixed income and derivative securities. He joined Bankers Trust in 1981.
John D. Axtell, a Principal and Stable Value Portfolio Manager at Bankers Trust,
has managed the Wrapper Agreements held by the Portfolio since its inception.
Mr. Axtell joined Bankers Trust in 1990.
Bankers Trust investment personnel may invest in securities for their own
account pursuant to a code of ethics that establishes procedures for personal
investing and restricts certain transactions.
ADMINISTRATOR
<PAGE>
Under an Administration and Services Agreement with the Trust, Bankers Trust
calculates the NAV per Share of the Fund and generally assists the Trust Board
in all aspects of the administration and operation of the Fund. This
Administration and Services Agreement provides for the Trust to pay Bankers
Trust a fee, accrued daily and paid monthly, of 0.10% per year of the average
daily net assets of the Shares.
Under an Administration and Services Agreement with the Portfolio Trust, Bankers
Trust calculates the NAV of the Portfolio and generally assists the Portfolio in
all aspects of the administration and operation of the Portfolio. This
Administration and Services Agreement provides for the Portfolio to pay Bankers
Trust a fee, accrued daily and paid monthly, of 0.05% per year of the
Portfolio's average daily net assets. Under this Administration and Services
Agreement, Bankers Trust may delegate one or more of its responsibilities to
others, including the Distributor or its affiliates, at Bankers Trust's expense.
In addition, subject to certain conditions, Bankers Trust may, out of its own
resources, make ongoing payments to brokerage firms, plan administrators and
fiduciaries, financial institutions (including banks) and others that facilitate
the administration and servicing of shareholder accounts.
DISTRIBUTOR
ICC, as Distributor, serves as the Trust's principal underwriter on a best
efforts basis. In addition, ICC and its affiliates provide administration and
distribution services for other registered investment companies. ICC is a
registered broker/dealer and is unaffiliated with Bankers Trust . Its principal
offices are at Two Portland Square, Portland, ME 04101.
CUSTODIAN AND TRANSFER AGENT
Bankers Trust acts as custodian for the assets of the Portfolio and serves as
the Trust's transfer agent (the "Transfer Agent") under the Administration and
Services Agreement with the Trust. It is not separately compensated for these
services and may, at its own expense, delegate certain services to other service
providers.
NET ASSET VALUE
<PAGE>
The NAV per Share is calculated on each day on which the New York Stock
Exchange, Inc. (the "NYSE") is open (each such day being a "Valuation Day"). The
NYSE is currently open on each day, Monday through Friday, except (a) January
1st, Martin Luther King Day (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 if the NYSE closes early, at the time of the early
closing. The NAV per Share is computed by dividing the value of the Fund's
assets (i.e., the value of its investment in the Portfolio and other assets, if
any), less all liabilities, by the total number of its Shares outstanding. The
Portfolio's securities and other assets are valued primarily on the basis of
market quotations or, if quotations are not readily available, by a method that
the Portfolio Trust Board believes accurately reflects fair value.
Pursuant to procedures adopted by the Portfolio Trust Board, the fair value of a
Wrapper Agreement ("Wrapper Value") generally will be equal to the difference
between the Book Value and the market value (plus accrued interest on the
underlying securities) of the applicable Covered Assets. If the market value
(plus accrued interest on the underlying securities) of the Covered Assets is
greater than their Book Value, the Wrapper Value will be reflected as a
liability of the Portfolio in the amount of the difference, i.e., a negative
value, reflecting the potential liability of the Portfolio to the Wrapper
Provider. If the market value (plus accrued interest on the underlying
securities) of the Covered Assets is less than their Book Value, the Wrapper
Value will be reflected as an asset of the Portfolio in the amount of the
difference, i.e., a positive value, reflecting the potential liability of the
Wrapper Provider to the Portfolio. In performing its fair value determination,
the Portfolio Trust Board expects to consider the creditworthiness and ability
of a Wrapper Provider to pay amounts due under the Wrapper Agreement. If the
Portfolio Trust Board determines that a Wrapper Provider is unable to make such
payments, that Board may assign a fair value to the Wrapper Agreement that is
less than the difference between the Book Value and the market value (plus
accrued interest on the underlying securities) of the applicable Covered Assets
and the Portfolio might be unable to maintain NAV stability.
Under procedures adopted by the Trust Board, an NAV per Share later determined
to have been inaccurate for any reason will be recalculated. Purchases and
redemptions made at an NAV per Share determined to have been
<PAGE>
inaccurate will be adjusted, although in certain circumstances, such as where
the difference between the original NAV per Share and the recalculated NAV per
Share divided by the latter is 0.005 (1/2 of 1%) or less or shareholder
transactions are otherwise insubstantially affected, action is not required.
SHAREHOLDER AND ACCOUNT POLICIES
ACCOUNT INFORMATION
The Fund is offered solely to Plans that limit their participants' ability to
direct a withdrawal from the Fund to the following circumstances:
(Bullet) upon the Plan participant's death, retirement, disability or
termination;
(Bullet) to fund Plan participant loans and other "in service" withdrawals made
pursuant to the terms of the Plan; and
(Bullet) for transfers to other Plan investment options that are not "competing
funds." "Competing funds" are any fixed income investment options with a
targeted average duration of three years or less, or any investment option that
seeks to maintain a stable value per unit or share, including money market
funds. Transfers between the Fund and a non-competing fund will be required to
remain in the non-competing fund for a period of at least three months before
transfer to a competing fund.
The Wrapper Agreements require that each Plan maintain the foregoing
restrictions on withdrawals. Consequently, to protect the interests of
Shareholders, the Fund has the right to unilaterally redeem some or all Fund
Shares of a Plan which does not maintain and enforce these restrictions. These
involuntary redemptions will be subject to the Fund's 2.0% redemption fee.
Fund Shares will be owned by the Plans, either directly or beneficially through
vehicles such as bank collective funds or insurance company separate accounts
consisting solely of such Plans (collectively, "Plan Pools"), which will in turn
offer the Fund as an investment option to their participants. Investments in the
Fund may by themselves represent an investment option for a Plan or may be
combined with other investments as part of a pooled investment option for the
Plan. In the latter case, the Fund will require Plans to provide information
regarding the withdrawal order and other characteristics of any pooled
investment option in which the Shares are included prior to a Plan's initial
investment in the Fund. Thereafter, the Fund will require the Plan to provide
information regarding any changes to the withdrawal order and other
characteristics of the pooled investment option before such changes are
implemented. The Fund in its sole discretion may decline to sell Shares to Plans
if
<PAGE>
the governing withdrawal order or other characteristics of any pooled investment
option in which the Shares are included is determined at any time to be
disadvantageous to the Fund.
Plan participants should contact their Plan administrator or the organization
that provides recordkeeping services if they have questions concerning their
account. Plan administrators and fiduciaries should call 1-800-677-7596 for
information regarding a Plan's account with the Fund.
TRANSACTIONS IN FUND SHARES
Plan participant-directed purchases, exchanges and redemptions of Shares are
handled in accordance with each Plan's specific provisions. Plans may have
different provisions with respect to the timing and method of purchases,
exchanges and redemptions by Plan participants. Plan participants should contact
their Plan administrator for details concerning how they may direct transactions
in Shares. It is the responsibility of the Plan administrator or other Plan
service provider to forward instructions for these transactions to Bankers
Trust.
Purchase orders for Shares that are received by Bankers Trust, as the Transfer
Agent, or other authorized agent of the Fund, prior to the Valuation Time on any
Valuation Day will be effective at that Valuation Time. The Trust and the
Distributor reserve the right to reject any purchase order. Certificates for
Shares will not be issued. Redemption requests will be processed at the NAV next
determined after a request for redemption is received in good order by Bankers
Trust. The Fund reserves the right to require written verification of whether a
redemption request is directed by Plan participants in accordance with Plan
provisions or is otherwise made by a withdrawing Plan and to establish the
authenticity of this information before processing a redemption request.
Normally, the Fund will make payment for all Shares redeemed under this
procedure within one business day after a request is received. In no event will
payment be made more than seven days after receipt of a redemption request in
good order. The Fund may suspend the right of redemption or postpone the date at
times when both the NYSE and the Fund's custodian bank (Bankers Trust) are
closed, or under any emergency circumstances as determined by the SEC.
The Fund reserves the right to honor any request for redemption by making
payment in whole or in part in securities and in Wrapper Agreements, selected
solely in the discretion of Bankers Trust. To the extent that payment is made in
securities, a shareholder may incur brokerage expenses in converting these
securities into cash. To the extent that a redemption in kind includes Wrapper
Agreements, the Fund will obtain from the Portfolio and assign to the redeeming
Plan or Plan Pool one or more Wrapper Agreements issued by the Wrapper
<PAGE>
Providers covering the Portfolio Securities distributed in kind. The terms and
conditions of Wrapper Agreements provided to a redeeming Plan shareholder will
be the same or substantially similar to the terms and conditions of the Wrapper
Agreements held by the Portfolio, including the requirement that the Plan
maintain the restrictions on participant withdrawals noted above. The redeeming
Plan or Plan Pool must execute the assigned Wrapper Agreement(s) in order to
obtain the benefits provided thereunder. Wrapper Agreements are not liquid
securities and may impose restrictions on termination or withdrawal, including
notice periods of one year or longer for non-participant directed withdrawals.
The maintenance of Wrapper Agreements distributed in kind will also require that
a Plan or Plan Pool pay fees to the Wrapper Provider directly, rather than
through the Fund, and that the securities covered by the Wrapper Agreement
continue to have a specified duration or maturity, consist of specified types of
securities or be of a specified investment quality. Accordingly, although a
redeeming Plan or Plan Pool may freely buy and sell securities covered by a
Wrapper Agreement, its management of the securities must be consistent with
Wrapper Agreement requirements in order for it to obtain the benefits of the
Wrapper Agreement. Moreover, a Plan or Plan Pool may be required to obtain at
its own expense the services of a qualified investment manager to execute the
Wrapper Agreement and to manage the securities distributed in kind in conformity
with the Wrapper Agreement provisions and may incur additional administrative
expenses in managing this portfolio. Please see the SAI for additional
information concerning Wrapper Agreements and redemptions in kind.
The Fund has elected, however, to redeem Shares solely in cash up to the lesser
of $500,000 or 1% of the NAV of the Fund during any 90-day period for any one
shareholder. The Fund anticipates that it will exercise the right to redeem in
kind in the case of redemptions of Shares that are not directed by Plan
participants and that are made on less than twelve months' prior written notice
to Bankers Trust. In such case, or in the case where 5% or more of Plan assets
invested in the Fund are redeemed on any business day, a redemption request will
not be considered received in good order unless the Plan has provided to Bankers
Trust: (i) its current name; (ii) a listing of its trustee(s); (iii) copies of
Plan documents or summaries thereof describing the investment options available
to and the restrictions imposed upon Plan participants; (iv) information
indicating the allocation of Plan assets among available investment options; (v)
for the immediately preceding three year period, a monthly summary of all cash
flow activity for the Plan's investment option in which the Shares are included,
detailed by contribution and benefit payment amounts and amounts transferred to
and from other investment options; and (vi) in the case of Plans subject to
ERISA, identification of a "Qualified Professional Asset Manager" within the
meaning of Department of Labor Prohibited Transaction Class Exemption 84-14
(March 8, 1984). Redemptions of Shares that are not directed by Plan
participants
<PAGE>
and that are made on less than twelve months' prior written notice will also be
subject to a redemption fee, payable to the Fund, of 2.0% of the proceeds of the
redemption, whether in kind or in cash. However, this redemption fee shall not
apply to redemptions, the proceeds of which are immediately reinvested in
another class of shares of the Fund or in interests in another investment
company or entity that invests exclusively in the Portfolio. The Fund reserves
the right to withhold from redemption proceeds the 2.0% redemption fee if 5% or
more of Plan assets invested in the Fund are redeemed on any business day
pending a determination of whether the redemption fee is applicable. The Fund
may incur costs in obtaining new Wrapper Agreements from Wrapper Providers to be
distributed in kind. These costs will be payable from, and are not expected to
exceed, the 2.0% redemption fee. The redemption price may be more or less than
the shareholder's cost, depending upon the market value of the Fund's assets
(its interest in the Portfolio) at the time.
The offering price is the NAV per Share. Shares may be purchased only in those
states where they may be lawfully sold.
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
The Fund intends to distribute all of its net investment income and net capital
gains, if any, to its shareholders each year. Dividends from net investment
income are declared daily and are paid monthly, and any net capital gains are
distributed annually. An additional annual distribution ("Additional
Distribution") may be paid to satisfy the tax requirements (outlined below) that
the Fund distribute each year substantially all of its investment company
taxable income (see "Tax Considerations").
Dividends and other distributions paid on each class of the Fund's shares are
calculated at the same time and in the same manner. Dividends on the shares may
be expected to differ based upon each class respective expenses. Dividends and
other distributions are automatically reinvested in additional Shares unless the
Plan participant directs otherwise.
The Fund may declare and pay dividends in amounts which are not equal to the
amount of the net investment income it actually earns. Consequently, in any year
the amount actually distributed may differ from the income earned. If, for any
year, those distributions exceed the income earned, the excess may be considered
a return of capital. On the other hand, if the income earned exceeds the amount
of the dividends distributed, the Fund may make an Additional Distribution of
that excess. To enable the Fund to maintain a stable NAV per Share in the event
of an Additional Distribution, the Trust Board may declare, effective on the
ex-distribution date of an Additional Distribution, a reverse split of the
Shares in an amount that will cause the total number of Shares held by each
shareholder,
<PAGE>
including Shares acquired on reinvestment of that distribution, to remain the
same as before that distribution was paid.
For example, if the Fund declares an Additional Distribution of 10(cents) per
Share at a time when the NAV per Share is $10.00, a shareholder holding one
Share would receive 0.01 additional Shares on reinvestment of that distribution.
If there were no reverse split, the per Share NAV of the 1.01 Shares held by the
shareholder would be approximately $9.90, and the aggregate value thereof would
be $10.00. If a 1.01-for-1 reverse Share split were declared, however, the
shareholder's holdings would be consolidated back into one Share having an NAV
of $10.00. Thus, a reverse Share split will not affect the value of the total
holdings of a shareholder.
TAX CONSIDERATIONS
The Fund intends to qualify to be treated as a regulated investment company
under the Internal Revenue Code of 1986, as amended.
As a regulated investment company, the Fund will not be subject to U.S. federal
income tax on its investment company taxable income (generally consisting of net
investment income and the excess of net short-term capital gain over net
long-term capital loss, if any) and net capital gain (the excess of net
long-term capital gain over net short-term capital loss), if any, that it
distributes to its shareholders. The Fund intends to distribute to its
shareholders all of its investment company taxable income and net capital gain
at least annually, if necessary through Additional Distributions, and therefore
does not anticipate incurring any federal income tax liability.
For Plan participants utilizing the Fund as an investment option under their
Plan, dividend and capital gain distributions from the Fund generally will not
be subject to current taxation, but will accumulate on a tax-deferred basis. In
general, Plans are governed by a complex set of tax rules. See your Plan
administrator, your plan's Summary Plan Description, and/or a professional tax
adviser regarding the tax consequences of your participation in your Plan and of
any Plan contributions or withdrawals.
ADDITIONAL INFORMATION ABOUT THE TRUSTS
The Fund is a mutual fund: an investment that pools shareholders' money and
invests it toward a specified goal. The Fund is a separate series of the Trust,
a Massachusetts business trust organized pursuant to a Declaration of Trust
dated February 28, 1992. The Portfolio is a separate subtrust of the Portfolio
Trust, a New York master trust fund organized pursuant to a Declaration of Trust
dated March 27, 1993.
<PAGE>
Each Trust reserves the right to add additional series/subtrusts in the future.
There are currently no other funds investing in the Portfolio. Other funds
investing in the Portfolio may have sales charges and/or different expenses than
the Fund, which may affect performance. The Trust also reserves the right to
issue additional classes of shares of the Fund. Each class represents an
identical interest in the Fund's investment portfolio. As a result, the classes
have the same rights, privileges and preferences, except with respect to: (1)
the designation of each class; (2) the expenses allocated exclusively to each
class; and (3) voting rights on matters exclusively affecting a single class.
The Trust Board does not anticipate that there will be any conflicts among the
interests of the holders of the different classes and will take appropriate
action if any such conflict arises. For more information about the different
classes of shares of the Fund, please call 1-800-677-7596.
Each Trust may hold special meetings and mail proxy materials. These meetings
may be called to elect or remove Trustees, change fundamental policies, approve
the Portfolio's investment advisory agreement, or for other purposes.
Shareholders not attending a Trust meeting are encouraged to vote by proxy. The
Transfer Agent will mail proxy materials in advance, including a voting card and
information about the proposals to be voted on.
When matters are submitted for shareholder vote, shareholders of the Fund will
have one vote for each full Share held and proportionate, fractional votes for
fractional Shares held. A separate vote of the Fund is required on any matter
affecting only the Fund on which shareholders are entitled to vote; shareholders
of the Fund are not entitled to vote on Trust matters that do not affect the
Fund and do not require a separate vote of the Fund. All series of the Trust
will vote together on certain matters, such as electing Trustees or approving
independent auditors. Under certain circumstances, the shareholders of one of
series of the Trust could control the outcome of these votes. There normally
will be no meetings of shareholders for the purpose of electing Trustees unless
and until such time as less than a majority of Trustees holding office has been
elected by shareholders, at which time the Trustees then in office will call a
shareholders' meeting for the election of Trustees. Any Trustee may be removed
from office upon the vote of shareholders holding at least two-thirds of the
Trust's outstanding shares at a meeting called for that purpose. The Trustees
are required to call such a meeting upon the written request of shareholders
holding at least 10% of the Trust's outstanding shares. The Trust will also
assist shareholders in communicating with one another as provided for in the
1940 Act.
Each subtrust of the Portfolio Trust, including the Portfolio, will vote
separately on any matter involving that subtrust. Holders of interests in all
the subtrusts of the Portfolio Trust, however, will vote together to elect
Trustees of the Portfolio
<PAGE>
Trust and for certain other matters. The subtrusts of the Portfolio Trust will
vote together or separately on matters in the same manner, and in the same
circumstances, as do the series of the Trust. As with the Trust, the investors
in one or more subtrusts of the Portfolio Trust could control the outcome of
these votes. No subtrust of the Portfolio Trust has any preference over any
other subtrust.
The Trust is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a business trust may,
under certain circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder's incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the Trust itself was unable to meet its
obligations.
The Portfolio Trust was organized as a trust under the laws of the State of New
York. The Portfolio Trust's Declaration of Trust provides that the entities
investing in the Portfolio (e.g., investment companies such as the Fund and
common and commingled trust funds) will each be liable for all obligations of
the Portfolio. However, the risk of the Fund's incurring financial loss on
account of such liability is limited to circumstances in which both inadequate
insurance existed and the Portfolio itself was unable to meet its obligations.
Accordingly, the Trustees of the Trust believe that neither the Fund nor its
shareholders will be adversely affected by reason of the Fund's investing in the
Portfolio.
As of October 30, 1998, Avon Employees Savings & Stock Ownership Plan, Brooklyn,
New York 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>
BT PYRAMID MUTUAL FUNDS BT PRESERVATION PLUS FUND
INSTITUTIONAL SERVICE CLASS
INVESTMENT ADVISER OF THE PORTFOLIO AND ADMINISTRATOR
BANKERS TRUST COMPANY
130 Liberty Street
(One Bankers Trust Plaza)
New York, New York 10006
DISTRIBUTOR
ICC DISTRIBUTORS, INC.
Two Portland Square,
Portland, ME 04101
CUSTODIAN AND TRANSFER AGENT
BANKERS TRUST COMPANY
130 Liberty Street
(One Bankers Trust Plaza)
New York, New York 10006
INDEPENDENT AUDITORS
ERNST & YOUNG LLP
Two Commerce Square,
2001 Market Street,
Philadelphia, Pennsylvania 19103
COUNSEL WILLKIE FARR & GALLAGHER 787 Seventh Avenue, New York, NY 10019
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus, the SAI or the
Fund's official sales literature in connection with the offering of the Shares
and, if given or made, such other information or representations must not be
relied on as having been authorized by the Fund. This Prospectus does not
constitute an offer in any state in which, or to any person to whom, such offer
may not lawfully be made.
Cusip #0558847826
STA485300 (11/98)
(BULLET) BT PYRAMID MUTUAL FUNDS (BULLET)
BT PRESERVATIONPLUS FUND
INSTITUTIONAL CLASS
Seeks a high level of current income while seeking to maintain a stable value
per share.
PROSPECTUS
NOVEMBER 30, 1998
BT Pyramid Mutual Funds (the "Trust") is an open-end management investment
company (mutual fund). The BT PreservationPlus Fund (the "Fund") is a separate
series of the Trust and offers separate classes of shares. The shares offered by
this prospectus are the Institutional Class of shares (the "Shares"). The Fund
seeks a high level of current income while seeking to maintain a stable value
per share. The Fund is offered solely to participant-directed employee benefit
plans meeting specified criteria.
UNLIKE OTHER MUTUAL FUNDS, THE FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY
INVESTING ALL OF ITS NET INVESTABLE ASSETS IN BT PRESERVATIONPLUS PORTFOLIO (THE
"PORTFOLIO"), A SEPARATE SUBTRUST OF BT INVESTMENT PORTFOLIOS, A NEW YORK MASTER
TRUST FUND (THE "PORTFOLIO TRUST"), WITH AN IDENTICAL INVESTMENT OBJECTIVE. SEE
"SPECIAL INFORMATION CONCERNING THE MASTER-FEEDER FUND STRUCTURE." THE FUND IS
NOT A MONEY MARKET FUND, AND THERE CAN BE NO ASSURANCE THAT IT WILL BE ABLE TO
MAINTAIN A STABLE VALUE PER SHARE OR OTHERWISE ACHIEVE ITS OBJECTIVE.
Please read this Prospectus before investing and keep it on file for future
reference. It contains important information concerning the Fund and the
Portfolio, including how the Portfolio invests and the services available to the
Fund's shareholders. Bankers Trust Company ("Bankers Trust") is the investment
adviser ("Adviser") of the Portfolio.
<PAGE>
To learn more about the Fund and the Portfolio, investors can obtain a copy of
the Fund's Statement of Additional Information ("SAI"), dated November 30, 1998,
which has been filed with the Securities and Exchange Commission (the "SEC") and
is incorporated herein by this 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
1-800-677-7596. 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).
SHARES OF THE FUND ARE NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, BANKERS TRUST COMPANY, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
AGENCY. AN INVESTMENT IN THE FUND IS SUBJECT TO RISK THAT MAY CAUSE THE VALUE OF
THE INVESTMENT TO FLUCTUATE, AND WHEN THE INVESTMENT IS REDEEMED, THE VALUE MAY
BE HIGHER OR LOWER THAN THE AMOUNT ORIGINALLY INVESTED BY THE INVESTOR.
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.
ICC DISTRIBUTORS, INC. (Bullet) Two Portland Square (Bullet) Portland,
Maine 04101 (Bullet)
TABLE OF CONTENTS
PAGE
The Fund............................................................3
Who May Invest......................................................3
Investment Principles and Risks.....................................3
<PAGE>
Summary of Fund Expenses............................................4
The Fund in Detail..................................................6
Risk Factors: Matching the Fund to Your Investment Needs............7
Special Information Concerning Master Feeder Fund Structure........10
Securities and Investment Practices of the Portfolio...............11
Performance........................................................14
Management of the Trusts...........................................14
Net Asset Value....................................................16
Shareholder and Account Policies...................................17
Transactions in Fund Shares........................................18
Dividends and Capital Gain Distributions...........................19
Tax Considerations.................................................20
Additional Information about the Trusts............................20
THE FUND
The Fund's investment objective is a high level of current income while seeking
to maintain a stable value per Share. The Fund seeks to achieve its investment
objective by investing all of its net investable assets in the Portfolio. The
Portfolio will seek to achieve this objective by investing in a diversified
portfolio of fixed income securities, money market instruments, futures, options
and other instruments ("Portfolio Securities") and by entering into contracts
("Wrapper Agreements") with financial institutions, such as insurance companies
and banks, that are intended to stabilize the value per Share of the Fund. See
"Risk Factors: Matching the Fund to Your Investment Needs."
There can be no assurance that the Fund will achieve its objective.
WHO MAY INVEST
Shares of the Fund are offered solely to participant-directed employee benefit
plans meeting specified criteria (each a "Plan" and together "Plans"). Shares
are
<PAGE>
offered to Plans either directly or through vehicles such as bank collective
funds or insurance company separate accounts consisting solely of such Plans.
The Fund is designed for investors seeking preservation and stability of
principal and a level of current income higher than money market mutual funds
over most time periods. The Shares are available to employee benefit plans whose
initial investment equals or exceeds $25 million. Shares are also available to
employee benefit plans which invest in the Fund through an omnibus account or
similar arrangement, if that omnibus account or similar arrangement makes an
initial investment in the Fund of at least $25 million.
The Fund is not in itself a balanced investment plan. Plan participants should
consider their investment objective and tolerance for risk when making an
investment decision. When Shares are redeemed, they may be worth more or less
than what they originally cost, although the nature of the Portfolio's
investments -- particularly the Wrapper Agreements -- are intended by the Fund
to stabilize the value per Share. A Plan offering investments in the Fund must
impose certain restrictions on the ability of a Plan participant to exchange
Shares for similar investment options. See "Account Information".
INVESTMENT PRINCIPLES AND RISKS
The value of most of the Portfolio Securities will fluctuate based upon changes
in domestic or foreign interest rates, the credit quality of the issuer, market
conditions, and other economic and political news. In general, the prices of
Portfolio Securities will rise when interest rates fall, and fall when interest
rates rise. The Wrapper Agreements are intended to stabilize the value per Share
by offsetting fluctuations in the value of the Portfolio Securities under
certain conditions. Under most circumstances, the combination of Portfolio
Securities and Wrapper Agreements held by the Portfolio is expected to provide
Fund shareholders with a constant net asset value ("NAV") per Share and a
current rate of return that is higher than most money market mutual funds over
most time periods. However, there can be no guarantee that the Portfolio will
maintain a constant NAV, and consequently that the Fund will be able to maintain
a constant NAV per Share. There is also no guarantee that any Fund shareholder
or Plan participant will realize the same investment return as might be realized
by a direct investment in the Portfolio Securities without the Wrapper
Agreements or that the Fund's rate of return will be higher than that of most
money market mutual funds.
The Portfolio incurs costs in connection with its investment in Wrapper
Agreements which will reduce the Fund's investment return. The Wrapper
Agreements may not insulate the Portfolio from loss if an issuer of Portfolio
Securities defaults on payments of interest or principal. Additionally, an
issuer of a Wrapper Agreement could default on its obligations under the
agreement or
<PAGE>
the Portfolio might be unable to obtain Wrapper Agreements covering all of its
assets. Either type of default or the inability to obtain Wrapper Agreements
might result in a decline in the value of the Shares. Moreover, in valuing a
Wrapper Agreement, the Board of Trustees of the Portfolio Trust may determine
that such agreement should not be carried by the Portfolio at a value sufficient
to maintain the Portfolio's NAV per Share.
Bankers Trust may use various investment techniques to hedge the Portfolio's
risks, but there is no guarantee that these strategies will work as intended.
See "Risk Factors: Matching the Fund to Your Investment Needs" for more
information.
SUMMARY OF FUND EXPENSES
Annual operating expenses are paid out of the assets of the Portfolio and the
Fund. The Portfolio pays an investment advisory fee and an administrative
services fee to Bankers Trust. The Fund incurs additional administrative
expenses such as maintaining shareholder records and furnishing shareholder
statements. The Fund must also provide semi-annual financial reports.
The following tables are intended to assist investors in understanding the
expenses associated with investing in the Fund. The table provides (i) a summary
of expenses related to purchases and redemptions (sales) of Shares and the
anticipated annual operating expenses of the Fund and the Portfolio, in the
aggregate, as a percentage of average daily net assets and (ii) an example
illustrating the dollar cost of such expenses on a $1,000 investment in the
Fund.
THE TRUSTEES OF THE TRUST BELIEVE THAT THE AGGREGATE EXPENSES OF THE FUND
(INCLUDING ITS PROPORTIONATE SHARE OF THE PORTFOLIO'S EXPENSES) WILL BE LESS
THAN OR APPROXIMATELY EQUAL TO THE EXPENSES THAT THE FUND WOULD INCUR IF THE
TRUST RETAINED THE SERVICES OF AN INVESTMENT ADVISER AND THE ASSETS OF THE FUND
WERE INVESTED DIRECTLY IN PORTFOLIO SECURITIES AND WRAPPER AGREEMENTS.
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge on Purchases None
Maximum Sales Charge on Reinvested Dividends None
Maximum Redemption Fee 2.0%
<PAGE>
Shareholder transaction expenses are charges paid when investors buy, redeem or
exchange Shares. Under normal circumstances, redemptions of Shares that are
directed by Plan participants are not subject to a redemption fee. Redemptions
of Shares that are not directed by Plan participants and that are made on less
than twelve months' prior written notice to the Fund are subject to a redemption
fee payable to the Fund of 2% of the proceeds of the redemption. See
"Transactions in Fund Shares."
ANNUAL OPERATING EXPENSES (as a percentage of the Fund's projected average daily
net assets)
Investment advisory fee (after reimbursement or waiver)* 0.20%
12b-1 fee None
Other expenses (after reimbursement or waiver)** 0.20%
Total operating expenses (after reimbursement or waiver) 0.40%
* The Fund does not directly pay an investment advisory fee; the amount shown
reflects the Fund's proportionate share of the Portfolio's investment advisory
fee.
** "Other expenses" include premiums paid for Wrapper Agreements and certain
additional services provided to the Fund and the Portfolio by Bankers Trust.
Wrapper Agreements are contracts entered into by the Portfolio that are intended
to stabilize the value per Share of the Fund (see "Investment Principles and
Risks").
EXAMPLE
An investor would pay the following expenses on a $1,000 investment assuming (1)
5% annual return and (2) redemption at the end of each time period. No
redemption fee has been included.
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
$4 $13 $22 $51
The expense table and the example above show the estimated costs and expenses
that an investor will bear directly or indirectly as a shareholder of the Fund.
Bankers Trust has voluntarily agreed to waive a portion of its investment
advisory fee payable by the Portfolio. Without such waiver, the Portfolio's
investment advisory fee would have been 0.35% of its average daily net assets.
Bankers Trust has also voluntarily agreed to waive a portion of its
administration
<PAGE>
fees and reimburse certain expenses (included in "Other Expenses") payable by
the Portfolio. Without such waiver or reimbursements, the Portfolio's "Other
Expenses" would have been 0.55%. Bankers Trust may terminate these voluntary
waivers and reimbursements at any time in its sole discretion without notice to
shareholders. In the absence of these waivers, "Total Operating Expenses" of the
Shares would have been 0.90%. THE EXAMPLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES, AND ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN. Moreover, while the example assumes a 5% annual return,
actual performance will vary and may result in a return greater or less than 5%.
Shares of the Fund are sold by ICC Distributors, Inc., Inc. ("ICC," or the
"Distributor"). For more information about the Fund's and the Portfolio's
expenses see "Management of the Trusts" and "Net Asset Value." The Fund and
Bankers Trust have authorized one or more brokers to accept on its behalf
purchase and redemption orders. Such brokers are authorized to designate other
intermediaries to accept purchase and redemption orders on the Fund's behalf.
The Fund 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.
As of the date of this Prospectus, the Fund has issued four classes of shares,
and may issue additional classes in the future. The Fund offers each class of
shares by a separate prospectus. Because the expenses vary between classes,
performance will vary with respect to each class. Additional information
concerning each class of shares is available from Bankers Trust, as
Administrator, at 1-800-677-7596.
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 period indicated and has been audited by Ernst & Young LLP, the Fund's
independent auditors, whose report thereon appears in the Fund's Annual Report
which is incorporated by reference.
<TABLE>
<CAPTION>
Institutional Class Shares
For the period
December 14, 1997* through
September 30, 1998
<S><C>
Per Share Operating Performance:
Net Asset Value, Beginning of Period $10.00
------
<PAGE>
Income from Investment Operations
Net Investment Income 0.46
Distributions to Shareholders
Net Investment Income (0.46)
------
Net Asset Value, End of Period $10.00
------
Total Investment Return 5.91%**
Supplemental Data and Ratios:
Net Assets, End of Period (000s omitted) $162,193
Ratios to Average Net Assets:***
Net Investment Income 5.79%**
Net Expenses, Including Expenses
of the PreservationPlus Portfolio 0.40%**
Decrease Reflected in Above Expense
Ratio Due to Absorption of Expenses
by Bankers Trust 0.50%**
</TABLE>
- -----------------
* Commencement of operations
** Annualized
*** Includes Fund share of Portfolio expenses
THE FUND IN DETAIL
INVESTMENT OBJECTIVE AND POLICIES
The Fund seeks to achieve its investment objective by investing all of its net
investable assets in the Portfolio, which has the same investment objective as
the Fund. Since the investment characteristics of the Fund will correspond
directly to those of the Portfolio, the following is a discussion of the various
investments of and techniques employed by the Portfolio. Additional information
about the
<PAGE>
investment policies of the Portfolio appears in "Risk Factors: Matching the Fund
to Your Investment Needs" herein and in the SAI. There can be no assurance that
the Fund's and the Portfolio's investment objective will be achieved. The
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 the Master-Feeder Fund Structure" herein.
The Portfolio's investment objective is a high level of current income while
seeking to maintain a stable value per Share. The Portfolio expects to invest at
least 65% of its total assets in fixed income securities ("Fixed Income
Securities") of varying maturities rated, at the time of purchase, in one of the
top three long-term rating categories by Standard & Poor's ("S&P"), Moody's
Investors Service, Inc. ("Moody's"), or Duff & Phelps Credit Rating Co., or
comparably rated by another nationally recognized statistical rating
organization ("NRSRO"), or, if not rated by a NRSRO, of comparable quality as
determined by Bankers Trust in its sole discretion.
In addition, the Portfolio will enter into Wrapper Agreements with insurance
companies, banks or other financial institutions ("Wrapper Providers") that are
rated, at the time of purchase, in one of the top two long-term rating
categories by Moody's or S&P. There is no active trading market for Wrapper
Agreements, and none is expected to develop; therefore, they will be considered
illiquid. At the time of purchase, the value of all of the Wrapper Agreements
and any other illiquid securities will not exceed 15% of the Portfolio's net
assets.
The Fixed Income Securities include fixed income securities issued or guaranteed
by the U.S. government, or any agency or instrumentality thereof; publicly or
privately issued U.S. dollar-denominated debt of domestic or foreign entities,
including corporate, sovereign or supranational entities; publicly issued U.S.
dollar denominated asset-backed securities issued by domestic or foreign
entities; mortgage pass-through securities issued by the Government National
Mortgage Association ("GNMA"), the Federal Home Loan Mortgage Corporation
("FHLMC") or the Federal National Mortgage Association ("FNMA"); mortgage
pass-through securities issued by non-government entities such as banks,
mortgage lenders, or other financial institutions, including private label
mortgage pass-through securities and whole loans; collateralized mortgage
obligations ("CMOs") and real estate mortgage investment conduits ("REMICs"),
which are mortgage-backed debt instruments that make payments of principal and
interest at a variety of intervals and are collateralized by any of the
aforementioned mortgage pass-through securities or whole loans; and obligations
issued or guaranteed, or backed by securities issued or guaranteed by, the U.S.
government, or any of its agencies or instrumentalities, including Certificates
of Accrual Treasury Securities ("CATS"), Treasury Income Growth
<PAGE>
Receipts ("TIGRs"), and Treasury Receipts ("TRs") and zero coupon securities
(securities consisting solely of the principal or interest component of a U.S.
Treasury bond).
The Portfolio Securities purchased by the Portfolio also include short-term
investments rated, at the time of purchase, in one of the top two short-term
rating categories by an NRSRO or, if unrated, of comparable quality in the
opinion of the Adviser, including commercial paper and time deposits,
certificates of deposit, bankers' acceptances, other instruments of foreign and
domestic banks and thrift institutions, and shares of money market mutual funds.
The Portfolio may invest up to 35% of its total assets in such short-term
investments for purposes of liquidity and up to 100% of its total assets in such
instruments for temporary defensive purposes. The Portfolio may also invest in
and utilize the following investments and investment techniques and practices:
Rule 144A securities (as defined in "Securities and Investment Practices of the
Portfolio"), when-issued and delayed delivery securities, repurchase agreements,
reverse repurchase agreements and dollar rolls, and options and futures
contracts. See "Risk Factors: Matching the Fund to Your Investment Needs" herein
and in the SAI for more information.
In selecting securities for the Portfolio, the Adviser attempts to maintain an
average portfolio duration of the Portfolio Securities within a range of 2.5 to
4.5 years. Duration is a measure of the expected life of a Fixed Income Security
on a present value basis which incorporates the security's yield, coupon
interest payments, final maturity and call features into a single measure.
RISK FACTORS: MATCHING THE FUND TO YOUR INVESTMENT NEEDS
The following pages contain more detailed information about types of instruments
in which the Portfolio may invest and strategies the Adviser may employ in
pursuit of the Portfolio's investment objective. A summary of the risks and
restrictions associated with these investments and investment practices is
included as well.
The Adviser may not buy all of these instruments or use all of these techniques
to the full extent permitted unless it believes that doing so will help the
Portfolio achieve its objective. Current holdings and investment strategies will
be described in the financial reports of the Fund and the Portfolio, which will
be sent to Fund shareholders twice a year.
RISKS OF INVESTING IN FIXED INCOME SECURITIES. All fixed income investments have
exposure to three types of risks. Credit risk is the possibility that the issuer
of a Fixed Income Security will fail to make timely payments of either interest
or principal to the Portfolio. Interest rate risk is the potential for
<PAGE>
fluctuations in the prices of Fixed Income Securities due to changing interest
rates. Income risk is the potential for decline in the Portfolio's income due to
the investment or reinvestment of assets in Fixed Income Securities when market
interest rates are falling.
Although there is no assurance that it will achieve its objective, the Portfolio
attempts to enhance yield while minimizing these risks. If an issuer of a Fixed
Income Security or a Wrapper Provider becomes financially impaired, it may
default on its obligations and the Portfolio's interest income may be reduced or
the Portfolio may incur a loss of principal. This is an example of credit risk.
In order to minimize credit risk, the Portfolio's assets are allocated among a
diversified group of issuers. Credit analysis is applied to every security and
Wrapper Provider selected for the Portfolio. Once purchased, a security and, in
the case of a Wrapper Agreement, the Wrapper Provider is monitored regularly by
Bankers Trust for maintenance of adequate credit characteristics. In the event
that the rating of a security or Wrapper Provider is downgraded by one or more
NRSRO, the Portfolio may elect to retain the security or applicable Wrapper
Agreement. However, some Wrapper Agreements may require that Fixed Income
Securities that fall below investment grade be liquidated within a set time
period, typically within one year or less. The Portfolio may elect not to cover
with Wrapper Agreements any Fixed Income Securities with a remaining maturity of
60 days or less and any cash or short term investments.
When interest rates rise, Fixed Income Security prices generally decline. When
interest rates fall, Fixed Income Security prices generally increase. Generally,
the longer the maturity of the Fixed Income Security, the higher its yield,
although longer-term Fixed Income Securities tend to offer less price stability
in response to changes in interest rates than do shorter-term investments.
Therefore, portfolios with shorter average maturities tend to have less risk and
lower returns than portfolios with longer average maturities. This is an example
of interest rate risk. In order to help maintain an average portfolio duration
of 2.5 to 4.5 years, the Portfolio will invest primarily in Fixed Income
Securities of short- to intermediate-term maturities. This will help to minimize
interest rate risk. In addition, unlike most traditional fixed income
portfolios, the Portfolio purchases Wrapper Agreements that should offset
substantially all of the price fluctuations typically associated with
longer-term Fixed Income Securities.
It is important to note the distinction between the Portfolio and short-term
investments such as money market funds. The securities held by the Portfolio
have a longer average maturity than those of money market funds. Because a money
market fund has a shorter average maturity, its yield will track the direction
of current market rates of return more closely than the Portfolio. For example,
in a rising interest rate environment, money market yields may rise more quickly
than will the Portfolio's. In a falling interest rate environment,
<PAGE>
money market yields may fall more quickly than the Portfolio's. Over the
long-term, however, intermediate and long-term Fixed Income Securities such as
those purchased by the Portfolio have historically offered higher yields than
short-term investments (i.e., money market funds).
RISKS OF WRAPPER AGREEMENTS. Each Wrapper Agreement obligates the Wrapper
Provider to maintain the "Book Value" of a portion of the Portfolio's assets
("Covered Assets") up to a specified maximum dollar amount, upon the occurrence
of certain specified events. The Book Value of the Covered Assets is their
purchase price (i) plus interest on the Covered Assets at a rate specified in
the Wrapper Agreement ("Crediting Rate"), and (ii) less an adjustment to reflect
any defaulted securities. The Crediting Rate used in computing Book Value is
calculated by a formula specified in the Wrapper Agreement and is adjusted
periodically. In the case of Wrapper Agreements purchased by the Portfolio, the
Crediting Rate is the actual interest earned on the Covered Assets, or an
index-based approximation thereof, plus or minus an adjustment for an amount
receivable from or payable to the Wrapper Provider based on fluctuations in the
market value of the Covered Assets. As a result, while the Crediting Rate will
generally reflect movements in the market rates of interest, it may at any time
be more or less than these rates or the actual interest income earned on the
Covered Assets. The Crediting Rate may also be impacted by defaulted securities
and by increases and decreases of the amount of Covered Assets as a result of
contributions and withdrawals tied to the sale and redemption of Shares.
Furthermore, the premiums due Wrapper Providers in connection with the
Portfolio's investments in Wrapper Agreements are offset against and thus reduce
the Crediting Rate. These premiums are generally paid quarterly. In no event
will the Crediting Rate fall below zero percent under the Wrapper Agreements
entered into by the Portfolio.
Under the terms of a typical Wrapper Agreement, if the market value (plus
accrued interest on the underlying securities) of the Covered Assets is less
than their Book Value at the time the Covered Assets are liquidated in order to
provide proceeds for withdrawals of Portfolio interests resulting from
redemptions of Shares by Plan participants, the Wrapper Provider becomes
obligated to pay to the Portfolio the difference. Conversely, the Portfolio
becomes obligated to make a payment to the Wrapper Provider if it is necessary
for the Portfolio to liquidate Covered Assets at a price above their Book Value
in order to make withdrawal payments. (Withdrawals generally will arise when the
Fund must pay shareholders who redeem their Shares.) Because it is anticipated
that each Wrapper Agreement will cover all Covered Assets up to a specified
dollar amount, if more than one Wrapper Provider becomes obligated to pay to the
Portfolio the difference between Book Value and market value (plus accrued
interest on the underlying securities), each Wrapper Provider will be obligated
to pay a pro-rata amount in proportion to the maximum dollar amount of coverage
<PAGE>
provided. Thus, the Portfolio will not have the option of choosing which Wrapper
Agreement to draw upon in any such payment situation.
The terms of the Wrapper Agreements vary concerning when these payments must
actually be made between the Portfolio and the Wrapper Provider. In some cases,
payments may be due upon disposition of the Covered Assets; other Wrapper
Agreements provide for settlement only upon termination of the Wrapper Agreement
or total liquidation of the Covered Assets. A Wrapper Provider's obligation to
make payments to the Portfolio may be subject to prior notice requirements for
certain types of withdrawals from the Portfolio. For example, the Wrapper
Agreement may require that one year's notice be provided to obtain Book Value
payments with respect to withdrawals to provide liquidity for Fund redemptions
that are not directed by Plan participants. The Portfolio does not anticipate
that it will be required to liquidate Covered Assets for the purpose of paying
such withdrawals before any such notice period has expired. However, in the
unlikely event that this occurs, the NAV of the Portfolio, and hence of the
Shares, may be reduced. Additionally, a Wrapper Provider's obligation to make
payments for Plan withdrawals after twelve months' prior notice (as opposed to
those directed by Plan participants) may require adjustments to the Crediting
Rate and increases in the Portfolio's holdings of short term investments, which
might adversely affect the return of the Portfolio and the Fund. Please see
discussion of "Liquidity Reserve."
The Fund expects that the use of Wrapper Agreements by the Portfolio will under
most circumstances permit the Fund to maintain a constant NAV per Share and to
pay dividends that will generally reflect over time both the interest income of,
and market gains and losses on, the Covered Assets held by the Portfolio less
the expenses of the Fund and the Portfolio. However, there can be no guarantee
that the Fund will maintain a constant NAV per Share or that any Fund
shareholder or Plan participant will realize the same investment return as might
be realized by investing directly in the Portfolio assets other than the Wrapper
Agreements. For example, a default by the issuer of a Portfolio Security or a
Wrapper Provider on its obligations might result in a decrease in the value of
the Portfolio assets and, consequently, the Shares. The Wrapper Agreements
generally do not protect the Portfolio from loss if an issuer of Portfolio
Securities defaults on payments of interest or principal. Additionally, a Fund
shareholder may realize more or less than the actual investment return on the
Portfolio Securities depending upon the timing of the shareholder's purchases
and redemption of Shares, as well as those of other shareholders. Furthermore,
there can be no assurance that the Portfolio will be able at all times to obtain
Wrapper Agreements. Although it is the current intention of the Portfolio to
obtain such agreements covering all of its assets (with the exceptions noted),
the Portfolio may elect not to cover some or all of its assets with Wrapper
Agreements should
<PAGE>
Wrapper Agreements become unavailable or should other conditions such as cost,
in Bankers Trust's sole discretion, render their purchase inadvisable.
If, in the event of a default of a Wrapper Provider, the Portfolio were unable
to obtain a replacement Wrapper Agreement, participants redeeming Shares might
experience losses if the market value of the Portfolio's assets no longer
covered by the Wrapper Agreement is below Book Value. The combination of the
default of a Wrapper Provider and an inability to obtain a replacement agreement
could render the Portfolio and the Fund unable to achieve their investment
objective of maintaining a stable NAV per Share. If the Board of Trustees of the
Portfolio Trust (the "Portfolio Trust Board") determines that a Wrapper Provider
is unable to make payments when due, that Board may assign a fair value to the
Wrapper Agreement that is less than the difference between the Book Value and
the market value (plus accrued interest on the underlying securities) of the
applicable Covered Assets and the Portfolio might be unable to maintain NAV
stability.
Some Wrapper Agreements require that the Portfolio maintain a specified
percentage of its total assets in short-term investments ("Liquidity Reserve").
These short-term investments must be used for the payment of withdrawals from
the Portfolio and Portfolio expenses. To the extent the Liquidity Reserve falls
below the specified percentage of total assets, the Portfolio is obligated to
direct all net cash flow to the replenishment of the Liquidity Reserve. The
obligation to maintain a Liquidity Reserve may result in a lower return for the
Portfolio and the Fund than if these funds were invested in longer-term Fixed
Income Securities. The Liquidity Reserve required by all Wrapper Agreements is
not expected to exceed 20% of the Portfolio's total assets. However, the
Liquidity Reserve amount may be required to be increased above this limit as a
result of anticipated Plan redemptions within one year.
Wrapper Agreements also require that the Covered Assets have a specified
duration or maturity, consist of specified types of securities or be of a
specified investment quality. The Portfolio will purchase Wrapper Agreements
whose criteria in this regard are consistent with the Portfolio's (and the
Fund's) investment objective and policies as described in this Prospectus.
Wrapper Agreements may also require the disposition of securities whose ratings
are downgraded below a certain level. This may limit the Portfolio's ability to
hold such downgraded securities. Please see the SAI for additional information
concerning Wrapper Agreements.
DERIVATIVES. The Portfolio may invest in various instruments, including the
Wrapper Agreements, that are commonly known as "derivatives". Generally, a
derivative is a financial arrangement the value of which is based on, or
"derived" from, a traditional security, asset or market index. Some derivatives
such as
<PAGE>
mortgage-related and other asset-backed securities are in many respects like any
other investments, although they may be more volatile or less liquid than more
traditional debt securities. There are, in fact, many different types of
derivatives and many different ways to use them. There are a range of risks
associated with those uses. Futures contracts and options are commonly used for
traditional hedging purposes to attempt to protect an investor from exposure to
changing interest rates, securities prices or currency exchange rates and for
cash management purposes as a low cost method of gaining exposure to a
particular securities market without investing directly in those securities.
However, some derivatives are used for leverage, which tends to magnify the
effect of an instrument's price changes as market conditions change. Leverage
involves the use of a small amount of money to control a large amount of
financial assets and can, in some circumstances, lead to significant losses.
Bankers Trust uses derivatives only in circumstances where it believes they
offer the most economic means of improving the risk/reward profile of the
Portfolio. Derivatives will not be used to increase portfolio risk above the
level that could be achieved using only traditional investment securities or to
acquire exposure to changes in the value of assets or indexes that by themselves
would not be purchased for the Portfolio. The use of derivatives for non-hedging
purposes may be considered speculative. A further description of the derivatives
that the Portfolio may use and some of their associated risks is found in
"Securities and Investment Practices of the Portfolio".
PORTFOLIO TURNOVER. The annual portfolio turnover rate measures the frequency
that the Portfolio sells and replaces the value of its securities within one
year. A portfolio turnover rate of 100% means that the Portfolio sold and
purchased investments equal to the average value of the Portfolio for a
particular time period. High turnover can increase the Fund's transaction costs,
thereby lowering its returns, and may increase your tax liability. The portfolio
manager does not have a target portfolio turnover rate. The turnover will depend
on the portfolio manager's assessment of how often to trade, in light of market
conditions and the fund objective.
YEAR 2000 MATTERS. Like other mutual funds, financial and business organizations
and individuals around the world, the Fund could be adversely affected if the
computer systems used by Bankers Trust and other service providers do not
properly process and calculate date-related information and data from and after
January 1, 2000. This is commonly known as the "Year 2000 Problem." Bankers
Trust is taking steps that it believes are reasonably designed to address the
Year 2000 Problem with respect to computer systems that it uses and to obtain
reasonable assurances that comparable steps are being taken by the Fund's other
major service providers. At this time, however, there can be no assurance that
these steps will be sufficient to avoid any adverse impact to the Fund nor can
there be any assurance that the Year 2000 Problem will not have an
<PAGE>
adverse effect on the companies whose securities are held by the Fund or on
global markets or economies, generally.
SPECIAL INFORMATION CONCERNING THE MASTER-FEEDER FUND STRUCTURE
Unlike other mutual funds that directly acquire and manage their own portfolio
securities, the Fund seeks to achieve its investment objective by investing all
of its net investable assets in the Portfolio, a separate subtrust of a
registered investment company with the same investment objective as the Fund.
Therefore, a Fund shareholder's interest in the Portfolio's assets is indirect.
In addition to selling a beneficial interest to the Fund, the Portfolio may sell
beneficial interests to other mutual funds or institutional investors. Such
investors will invest in the Portfolio on the same terms and conditions and will
pay a proportionate share of the Portfolio's expenses. However, the other
investors investing in the Portfolio are not required to sell their shares or
other interests at the same public offering price as the Fund, due to variations
in sales commissions and other operating expenses. Therefore, investors in the
Fund should be aware that these differences may result in differences in returns
experienced by investors in the different entities that invest in the Portfolio.
Such differences in returns are also present in other mutual fund structures.
Information concerning other holders of interests in the Portfolio is available
from Bankers Trust, as the Administrator, at 1-800-677-7596.
The master-feeder fund structure is relatively complex, so shareholders should
carefully consider this investment approach. Smaller investors in the Portfolio
may be materially affected by the actions of larger investors in the Portfolio.
For example, if a large investor withdraws from the Portfolio, the remaining
investors may experience higher pro rata operating expenses, thereby producing
lower returns (however, this possibility exists as well for traditionally
structured funds that have large investors). Additionally, the Portfolio may
become less diverse, resulting in increased portfolio risk. Also, investors with
a greater pro rata ownership in the Portfolio could have effective voting
control of its operations. Except as permitted by the SEC, whenever the Trust is
requested to vote on matters pertaining to the Portfolio, the Trust will hold a
meeting of shareholders of the Fund and will cast all of its votes in the same
proportion as the votes of the Fund's shareholders. Fund shareholders who do not
vote will not affect the Trust's votes on the Portfolio's matters; the Trust's
votes representing Fund shareholders not voting will be voted by the Trustees or
officers of the Trust in the same proportion as the Fund shareholders who do, in
fact, vote. Certain changes in the Portfolio's investment objective, policies or
restrictions may require the Fund to withdraw its interest in the Portfolio. Any
such withdrawal could result in a distribution "in kind" of Portfolio assets (as
opposed
<PAGE>
to a cash distribution from the Portfolio). If securities are distributed, the
Fund could incur brokerage, tax or other charges in converting the securities to
cash. In addition, the distribution "in kind" may result in a less diversified
portfolio of investments or adversely affect the liquidity of the Fund.
Notwithstanding the above, there are other means for meeting redemption
requests, such as borrowing. The Fund may withdraw its investment from the
Portfolio at any time, if the Board of Trustees of the Trust (the "Trust Board")
determines that it is in the best interests of the shareholders of the Fund to
do so. Upon any such withdrawal, the Trust Board would consider what action
might be taken, including the investment of all the assets of the Fund in
another pooled investment entity having the same investment objective as the
Fund or the retaining of an investment adviser to manage the Fund's assets in
accordance with the investment policies described herein with respect to the
Portfolio.
The Fund's investment objective is not a fundamental policy and may be changed
upon notice to, but without the need for approval of, its shareholders. If there
is a change in the Fund's investment objective, its shareholders should consider
whether the Fund remains an appropriate investment in light of their
then-current needs. The investment objective of the Portfolio also is not a
fundamental policy. Shareholders of the Fund will receive 30 days' prior written
notice with respect to any change in the investment objective of the Fund or the
Portfolio. See "Investment Restrictions" in the SAI for a description of the
fundamental policies of the Portfolio that cannot be changed without approval by
"the vote of a majority of the outstanding voting securities" (as defined in the
Investment Company Act of 1940 (the "1940 Act")) of the Portfolio.
SECURITIES AND INVESTMENT PRACTICES OF THE PORTFOLIO
U.S. GOVERNMENT SECURITIES. U.S. government securities are high-quality debt
securities issued or guaranteed by the U.S. Treasury or by an agency or
instrumentality of the U.S. government. Not all U.S. government securities are
backed by the full faith and credit of the United States. For example,
securities issued by the Farm Credit Banks or by the FNMA are supported by the
instrumentality's right to borrow money from the U.S. Treasury under certain
circumstances. However, securities issued by certain other U.S. agencies or
instrumentalities are supported only by the credit of the entity that issued
them.
OTHER U.S. DOLLAR-DENOMINATED FIXED INCOME SECURITIES. Bonds and other debt
instruments are used by issuers to borrow money from investors. The issuer pays
the investor a fixed or variable rate of interest and must repay the amount
borrowed at maturity. Some debt securities, such as zero coupon bonds, do not
pay current interest but are purchased at a discount from their face values.
Debt securities, loans and other direct debt have varying degrees of quality and
varying levels of sensitivity to changes in interest rates. Longer-term
<PAGE>
bonds are generally more sensitive to interest rate changes than short-term
bonds.
U.S. DOLLAR-DENOMINATED SOVEREIGN AND SUPRANATIONAL FIXED INCOME SECURITIES.
Debt instruments issued or guaranteed by foreign governments, agencies and
supranational organizations ("sovereign debt obligations"), especially sovereign
debt obligations of developing countries, may involve a high degree of risk. The
issuer of the obligation or the governmental authorities that control the
repayment of the debt may be unable or unwilling to repay principal and interest
when due and may require renegotiation or rescheduling of debt payments. In
addition, prospects for repayment of principal and interest may depend on
political as well as economic factors.
MORTGAGE-BACKED SECURITIES. The Portfolio may purchase mortgage-backed
securities issued by the U.S. government, its agencies or instrumentalities and
non-governmental entities such as banks, mortgage lenders or other financial
institutions. Mortgage-backed securities include mortgage pass-through
securities, mortgage-backed bonds and mortgage pay-through securities. A
mortgage pass-through security is a pro rata interest in a pool of mortgages
where the cash flow generated from the mortgage collateral is passed through to
the security holder. A mortgage-backed bond is a general obligation of the
issuer, payable out of the issuer's general funds and additionally secured by a
first lien on a pool of mortgages. Mortgage pay-through securities exhibit
characteristics of both pass-through and mortgage-backed bonds. The mortgage
pass-through securities issued by non-governmental entities such as banks,
mortgage lenders or other financial institutions in which the Portfolio may
invest include private label mortgage pass-through securities and whole loans.
Mortgage-backed securities also include other debt obligations secured by
mortgages on commercial real estate or residential properties. Other types of
mortgage-backed securities will likely be developed in the future, and the
Portfolio may invest in them if Bankers Trust determines they are consistent
with the Portfolio's investment objective and policies.
Unlike ordinary Fixed Income Securities, which generally pay a fixed rate of
interest and return principal upon maturity, mortgage-backed securities repay
both interest income and principal as part of their periodic payments. Because
the mortgages underlying mortgage-backed certificates can be prepaid at any time
by homeowners or corporate borrowers, mortgage-backed securities give rise to
certain unique "pre-payment" risks. Prepayment risk or call risk is the
likelihood that, during periods of falling interest rates, securities with high
stated interest rates will be prepaid (or "called") prior to maturity, requiring
the Portfolio to invest the proceeds at generally lower interest rates.
<PAGE>
COLLATERALIZED MORTGAGE OBLIGATIONS. CMOs are pay-through securities
collateralized by mortgages or mortgage-backed securities. CMOs are issued in
classes and series that have different maturities and often are retired in
sequence. The issuer of a series of CMOs may elect to be treated as a REMIC.
ASSET-BACKED SECURITIES. Asset-backed securities have structural characteristics
similar to mortgage-backed securities. However, the underlying assets are not
first lien mortgage loans or interests therein but include assets such as motor
vehicle installment sale contracts, other installment sale contracts, home
equity loans, leases of various types of real, and personal property, and
receivables from revolving credit (credit card) agreements. Such assets are
securitized through the use of trusts or special purpose corporations. Payments
or distributions of principal and interest on asset-backed jsecurities may be
guaranteed up to certain amounts and for a certain time period by a letter of
credit or a pool insurance policy issued by a financial institution unaffiliated
with the issuer, or other credit enhancements may be present.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities do not have the benefit
of the same type of security interest in the related collateral. Credit card
receivables are generally unsecured, and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, many of which
give such debtors the right to avoid payment of certain amounts owed on the
credit cards, thereby reducing the balance due. There is the risk in connection
with automobile receivables that recoveries on repossessed collateral may not,
in some cases, be available to support payments on those securities.
U.S. DOLLAR-DENOMINATED FOREIGN SECURITIES. The Portfolio may invest a portion
of its assets in the dollar-denominated debt securities of foreign companies.
Investing in the securities of foreign companies involves more risks than
investing in securities of U.S. companies. Their value is subject to economic
and political developments in the countries where the companies operate and to
changes in foreign currency values. Values may also be affected by foreign tax
laws, changes in foreign economic or monetary policies, exchange control
regulations and regulations involving prohibitions on the repatriation of
foreign currencies.
In general, less information may be available about foreign companies than about
U.S. companies, and foreign companies are generally not subject to the same
accounting, auditing and financial reporting standards as are U.S. companies.
Foreign securities markets may be less liquid and subject to less regulation
than the U.S. securities markets. The costs of investing outside the United
States frequently are higher than those in the United States. These costs
include relatively higher brokerage commissions and foreign custody expenses.
<PAGE>
ZERO COUPON SECURITIES. Zero Coupon Securities, including CATS, TIGRs and TRs,
are the separate income or principal components of a debt instrument. These
involve risks that are similar to those of other debt securities, although they
may be more volatile, and the value of certain zero coupon securities moves in
the same direction as interest rates. Zero coupon bonds do not make regular
interest payments.
RULE 144A SECURITIES. Rule 144A Securities are securities that are not
registered for sale under the federal securities laws but can be resold to
institutions pursuant to Rule 144A under the Securities Act of 1933. Provided
that a dealer or institutional trading market in such securities exists, these
restricted securities are treated as exempt from the Portfolio's 15% limit on
illiquid securities. Under the supervision of the Portfolio Trust Board, Bankers
Trust determines the liquidity of restricted securities; and through reports
from Bankers Trust, the Portfolio Trust Board monitors trading activity in
restricted securities. If institutional trading in restricted securities were to
decline, the liquidity of the Portfolio could be adversely affected.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Portfolio may purchase
securities on a when-issued or delayed delivery basis. Delivery of and payment
for these securities may take place as late as a month or more after the date of
the purchase commitment. The value of these securities is subject to market
fluctuations during this period, and no income accrues to the Portfolio until
settlement takes place.
REPURCHASE AGREEMENTS. In a repurchase agreement, the Portfolio buys a security
at one price and simultaneously agrees to sell it back to the seller on a
specific date and at a higher price reflecting a market rate of interest
unrelated to the coupon rate or maturity of the underlying security. Delays or
losses could result if the other party to the agreement defaults or becomes
insolvent.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS. In a reverse repurchase
agreement, the Portfolio temporarily transfers possession of a portfolio
instrument to another party in return for cash. This could increase the risk of
fluctuation in the Fund's yield or in the market value of its interest in the
Portfolio. In a dollar roll, the Portfolio sells mortgage-backed or other
securities for delivery in the current month and simultaneously contracts to
purchase substantially similar securities on a specified future date. Reverse
repurchase agreements and dollar rolls are forms of borrowing and will be
counted towards the Portfolio's borrowing restrictions. See "Borrowing" on the
following pages and in the SAI. Wrapper Agreements would cover the cash proceeds
of such transactions but not the portfolio instruments transferred to another
party until possession of such instruments is returned to the Portfolio.
<PAGE>
SHORT-TERM INVESTMENTS. The Portfolio's assets may be invested in high quality
short-term investments with remaining maturities of 397 days or less to maintain
the Liquidity Reserve, to meet anticipated redemptions and expenses for
day-to-day operating purposes and when, in Bankers Trust's opinion, it is
advisable to adopt a temporary defensive position because of unusual and adverse
conditions affecting the respective markets.
BORROWING. The Portfolio will not borrow money (including through reverse
repurchase agreements or dollar roll transactions) for any purpose in excess of
5% of its total assets, except that it may borrow for temporary or emergency
purposes up to 1/3 of its total assets. Under the 1940 Act, the Portfolio is
required to maintain continuous asset coverage of 300% with respect to such
borrowings and to sell (within three days) sufficient portfolio holdings to
restore such coverage if it should decline to less than 300% due to market
fluctuations or otherwise, even if such liquidation of the Portfolio's holdings
may be disadvantageous from an investment standpoint.
Leveraging by means of borrowing may exaggerate the effect of any increase or
decrease in the value of the Portfolio's securities and the Fund's NAV per
Share, and money borrowed by the Portfolio will be subject to interest and other
costs (which may include commitment fees and/or the cost of maintaining minimum
average balances) that may exceed the income received from the securities
purchased with the borrowed funds. It is not the intention of Bankers Trust to
use leverage as a normal practice in the investment of the Portfolio's assets.
HEDGING STRATEGIES. The Portfolio may use certain strategies designed to adjust
the overall risk of its investment portfolio. These "hedging" strategies involve
derivative contracts, including U.S. Treasury and Eurodollar futures contracts
and exchange-traded put and call options on such futures contracts. New
financial products and risk management techniques continue to be developed and
may be used if consistent with the Portfolio's investment objective and
policies. Among other purposes, these hedging strategies may be used to
effectively maintain a desired portfolio duration or to protect against market
risk should the Portfolio change its investments among different types of Fixed
Income Securities. In this respect, these hedging strategies are designed for
different purposes than the investments in Wrapper Agreements. The SAI contains
further information on these strategies.
The Portfolio might not use any hedging strategies, and there can be no
assurance that any strategy used will succeed. If the Adviser is incorrect in
its judgment on market values, interest rates or other economic factors in using
a hedging strategy, the Portfolio may have lower net income and a net loss on
the investment. Each of these strategies involves certain risks, which include:
<PAGE>
(Bullet) the fact that the skills needed to use hedging instruments are
different from those needed to select securities for the Portfolio;
(Bullet) the possibility of imperfect correlation, or even no correlation,
between the price movements of hedging instruments and price movements of the
securities or currencies being hedged;
(Bullet) possible constraints placed on the Portfolio's ability to purchase or
sell portfolio investments at advantageous times due to the need for the
Portfolio to maintain "cover" or to segregate securities; and
(Bullet) the possibility that the Portfolio is unable to close out or liquidate
its hedged position.
ASSET COVERAGE. To assure that the Portfolio's use of futures contracts and
related options, as well as when-issued and delayed delivery securities, are not
used to achieve investment leverage, the Portfolio will cover such transactions,
as required under applicable interpretations of the SEC, either by owning the
underlying securities or by segregating liquid securities with the Portfolio's
custodian (Bankers Trust) in an amount at all times equal to or exceeding the
Portfolio's commitment with respect to these instruments or contracts. Assets
that are segregated for purposes of providing cover need not be physically
segregated in a separate account provided that the custodian notes on its books
that such assets are segregated. The Portfolio will also cover its use of
Wrapper Agreements to the extent required to avoid the creation of a "senior
security" (as defined in the 1940 Act) in connection with its use of such
agreements.
PERFORMANCE
The Fund's performance may be used from time to time in advertisements,
shareholders reports or other communications to shareholders or prospective
shareholders. Performance information may include investment results and/or
comparisons of its investment results to the IBC Averages, Lipper Averages, an
appropriate guaranteed interest contract ("GIC") average, or other various
unmanaged indices or results of other mutual funds or investment or saving
vehicles. The Portfolio's strategies, holdings and performance will be detailed
twice a year in the Fund's financial reports, which are sent to all Fund
shareholders. From time to time, the Shares' ranking may be quoted from various
sources, such as Lipper Analytical Services, Inc., Value Line, Inc. and
Morningstar, Inc.
<PAGE>
Mutual fund performance is commonly measured as total return and/or yield. The
performance of a class of shares is affected by its expenses and those of the
Portfolio.
EXPLANATION OF TERMS
TOTAL RETURN is the change in value of an investment in the Shares over a given
period, assuming reinvestment of any dividends and capital gain distributions. A
cumulative total return reflects actual performance over a stated period of
time. An average annual total return is a hypothetical rate of return that, if
achieved annually, would have produced the same cumulative total return if
performance had been constant over the entire period. Average annual total
return calculations smooth out variations in performance; they are not the same
as actual year-by-year results. Average annual total returns covering periods of
less than one year assume that performance will remain constant for the rest of
the year.
YIELD refers to the income generated by an investment in the Shares over a given
period of time, expressed as an annual percentage rate. Yields are calculated
according to a standard that is required for all stock and bond funds. Because
this differs from other accounting methods, the quoted yield may not equal the
income actually paid to shareholders.
Unlike some bank deposits or other investments that pay a fixed yield for a
stated period of time, the total return of the Shares will vary depending upon
interest rates, the current market value of the Portfolio Securities and the
Wrapper Agreements and changes in the expenses of the Shares and the Portfolio.
In addition, during certain periods for which total return may be provided,
Bankers Trust may have voluntarily agreed to waive portions of its fees, or to
reimburse certain operating expenses of the Fund or the Portfolio, on a
month-to-month basis. Such waivers will have the effect of increasing the Fund's
net income (and therefore its yield and total return) during the period such
waivers are in effect.
TOTAL RETURNS AND YIELDS ARE BASED ON PAST RESULTS AND ARE NOT AN INDICATION OF
FUTURE PERFORMANCE.
MANAGEMENT OF THE TRUSTS
BOARDS OF TRUSTEES
The Trust and the Portfolio Trust (collectively the "Trusts") are each governed
by a Board of Trustees that is responsible for protecting the interests of
investors. A majority of the Trustees who are not "interested persons" (as
defined in the 1940
<PAGE>
Act) of either Trust have adopted written procedures reasonably appropriate to
deal with potential conflicts of interest arising from the fact that some of the
same individuals may be Trustees of both Trusts, up to and including creating
separate boards of trustees. See "Management of the Trusts" in the SAI for more
information with respect to the Trustees and officers of the Trusts.
INVESTMENT ADVISER
The Fund has not retained the services of an investment adviser because it seeks
to achieve its investment objective by investing all of its net investable
assets in the Portfolio. The Portfolio has retained the services of Bankers
Trust as its investment adviser pursuant to an Investment Advisory Agreement
between the Portfolio Trust and Bankers Trust dated April 28, 1993 (the
"Investment Advisory Agreement").
BANKERS TRUST COMPANY AND ITS AFFILIATES
Bankers Trust Company, a New York banking corporation with principal offices at
130 Liberty Street (One Bankers Trust Plaza), New York, New York 10006, is a
wholly owned subsidiary of Bankers Trust New York Corporation. Bankers Trust
conducts a variety of general banking and trust activities and is a major
wholesale supplier of financial services to the international and domestic
institutional market.
As of September 30, 1998, Bankers Trust Corporation was the seventh largest bank
holding company in the United States with total assets of over $150 billion.
Bankers Trust is a worldwide financial services firmdedicated 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. Bankers Trust is
one of the nation's largest and most experienced investment managers, with over
$350 billion in assets under management globally. The scope of Bankers Trust's
investment management capability is unique due to its leadership positions in
both active and passive quantitative management and its presence in major equity
and fixed income markets around the world. Bankers Trust's officers have had
extensive experience in managing investment portfolios having objectives similar
to those of the Fund and the Portfolio. Bankers Trust has more than 50 years of
experience managing retirement assets for the nation's largest corporations and
institutions.
<PAGE>
Bankers Trust, subject to the supervision and direction of the Portfolio Trust's
Board, manages the Portfolio in accordance with the Portfolio's investment
objective and stated investment policies, makes investment decisions for the
Portfolio, places orders to purchase and sell securities and other financial
instruments on behalf of the Portfolio and employs professional investment
managers and securities analysts who provide research services to the Portfolio.
Bankers Trust may utilize the expertise of any of its worldwide subsidiaries and
affiliates to assist it in its role as investment adviser. All orders for
investment transactions on behalf of the Portfolio are placed by Bankers Trust
with broker-dealers and other financial intermediaries that it selects,
including those affiliated with Bankers Trust. A Bankers Trust affiliate will be
used in connection with a purchase or sale of an investment for the Portfolio
only if Bankers Trust believes that the affiliate's charge for the transaction
does not exceed usual and customary levels. The Portfolio will not invest in
obligations, including Wrapper Agreements, for which Bankers Trust or any of its
affiliates is the ultimate obligor or accepting bank. The Portfolio may,
however, invest in the obligations of correspondents and customers of Bankers
Trust.
The Investment Advisory Agreement provides for the Portfolio Trust to pay
Bankers Trust a fee, accrued daily and paid monthly, of 0.35% per year of the
average daily net assets of the Portfolio. Bankers Trust has indicated that it
will voluntarily waive all but 0.20% of this fee. 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 Trusts described in
this Prospectus and the SAI without violation of the Glass-Steagall Act or other
applicable banking laws or regulations. State laws on this issue may differ from
the interpretations of relevant federal law, and banks and financial
institutions may be required to register as dealers pursuant to state securities
law.
PORTFOLIO MANAGEMENT
Eric Kirsch (CFA), a Managing Director of Bankers Trust, has been responsible
for the day-to-day investment management of the Portfolio since its inception.
Mr. Kirsch heads the stable value investment group of Bankers Trust's Global
Investment Management business. In this capacity, he manages stable value
portfolios and coordinates fixed income portfolio management and trading
functions with regards to these portfolios' investments. He joined Bankers Trust
in 1980.
<PAGE>
Louis R. D'Arienzo, a Vice President and Portfolio Manager of the structured
fixed income group at Bankers Trust, has managed the Fixed Income Securities of
the Portfolio since its inception. Mr. D'Arienzo has 17 years of trading and
investment experience in structured portfolios and quantitative analysis of
fixed income and derivative securities. He joined Bankers Trust in 1981.
John D. Axtell, a Principal and Stable Value Portfolio Manager at Bankers
Trust, has managed the Wrapper Agreements held by the Portfolio since its
inception. Mr. Axtell joined Bankers Trust in 1990.
Bankers Trust investment personnel may invest in securities for their own
account pursuant to a code of ethics that establishes procedures for personal
investing and restricts certain transactions.
ADMINISTRATOR
Under an Administration and Services Agreement with the Trust, Bankers Trust
calculates the NAV per Share of the Fund and generally assists the Trust Board
in all aspects of the administration and operation of the Fund. This
Administration and Services Agreement provides for the Trust to pay Bankers
Trust a fee, accrued daily and paid monthly, of 0.10% per year of the average
daily net assets of the Shares.
Under an Administration and Services Agreement with the Portfolio Trust, Bankers
Trust calculates the NAV of the Portfolio and generally assists the Portfolio in
all aspects of the administration and operation of the Portfolio. This
Administration and Services Agreement provides for the Portfolio to pay Bankers
Trust a fee, accrued daily and paid monthly, of 0.05% per year of the
Portfolio's average daily net assets. Under this Administration and Services
Agreement, Bankers Trust may delegate one or more of its responsibilities to
others, including the Distributor or its affiliates, at Bankers Trust's expense.
In addition, subject to certain conditions, Bankers Trust may, out of its own
resources, make ongoing payments to brokerage firms, plan administrators and
fiduciaries, financial institutions (including banks) and others that facilitate
the administration and servicing of shareholder accounts.
DISTRIBUTOR
ICC, as Distributor, serves as the Trust's principal underwriter on a best
efforts basis. In addition, ICC and its affiliates provide administration and
distribution services for other registered investment companies. ICC is a
registered
<PAGE>
broker/dealer and is unaffiliated with Bankers Trust . Its principal offices are
at Two Portland Square, Portland, ME 04101.
CUSTODIAN AND TRANSFER AGENT
Bankers Trust acts as custodian for the assets of the Portfolio and serves as
the Trust's transfer agent (the "Transfer Agent") under the Administration and
Services Agreement with the Trust. It is not separately compensated for these
services and may, at its own expense, delegate certain services to other service
providers.
NET ASSET VALUE
The NAV per Share is calculated on each day on which the New York Stock
Exchange, Inc. (the "NYSE") is open (each such day being a "Valuation Day"). The
NYSE is currently open on each day, Monday through Friday, except (a) January
1st, Martin Luther King Day (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 if the NYSE closes early, at the time of the early
closing. The NAV per Share is computed by dividing the value of the Fund's
assets (i.e., the value of its investment in the Portfolio and other assets, if
any), less all liabilities, by the total number of its Shares outstanding. The
Portfolio's securities and other assets are valued primarily on the basis of
market quotations or, if quotations are not readily available, by a method that
the Portfolio Trust Board believes accurately reflects fair value.
Pursuant to procedures adopted by the Portfolio Trust Board, the fair value of a
Wrapper Agreement ("Wrapper Value") generally will be equal to the difference
between the Book Value and the market value (plus accrued interest on the
underlying securities) of the applicable Covered Assets. If the market value
(plus accrued interest on the underlying securities) of the Covered Assets is
greater than their Book Value, the Wrapper Value will be reflected as a
liability of the Portfolio in the amount of the difference, i.e., a negative
value, reflecting the potential liability of the Portfolio to the Wrapper
Provider. If the market value (plus accrued interest on the underlying
securities) of the Covered Assets is less
<PAGE>
than their Book Value, the Wrapper Value will be reflected as an asset of the
Portfolio in the amount of the difference, i.e., a positive value, reflecting
the potential liability of the Wrapper Provider to the Portfolio. In performing
its fair value determination, the Portfolio Trust Board expects to consider the
creditworthiness and ability of a Wrapper Provider to pay amounts due under the
Wrapper Agreement. If the Portfolio Trust Board determines that a Wrapper
Provider is unable to make such payments, that Board may assign a fair value to
the Wrapper Agreement that is less than the difference between the Book Value
and the market value (plus accrued interest on the underlying securities) of the
applicable Covered Assets and the Portfolio might be unable to maintain NAV
stability.
Under procedures adopted by the Trust Board, an NAV per Share later determined
to have been inaccurate for any reason will be recalculated. Purchases and
redemptions made at an NAV per Share determined to have been inaccurate will be
adjusted, although in certain circumstances, such as where the difference
between the original NAV per Share and the recalculated NAV per Share divided by
the latter is 0.005 ( 1/2 of 1%) or less or shareholder transactions are
otherwise insubstantially affected, action is not required.
SHAREHOLDER AND ACCOUNT POLICIES
ACCOUNT INFORMATION
The Fund is offered solely to Plans that limit their participants' ability to
direct a withdrawal from the Fund to the following circumstances:
(Bullet) upon the Plan participant's death, retirement, disability or
termination;
(Bullet) to fund Plan participant loans and other "in service" withdrawals made
pursuant to the terms of the Plan; and
(Bullet) for transfers to other Plan investment options that are not "competing
funds." "Competing funds" are any fixed income investment options with a
targeted average duration of three years or less, or any investment option that
seeks to maintain a stable value per unit or share, including money market
funds. Transfers between the Fund and a non-competing fund will be required to
remain in the non-competing fund for a period of at least three months before
transfer to a competing fund.
The Wrapper Agreements require that each Plan maintain the foregoing
restrictions on withdrawals. Consequently, to protect the interests of
<PAGE>
Shareholders, the Fund has the right to unilaterally redeem some or all Fund
Shares of a Plan which does not maintain and enforce these restrictions. These
involuntary redemptions will be subject to the Fund's 2.0% redemption fee.
Fund Shares will be owned by the Plans, either directly or beneficially through
vehicles such as bank collective funds or insurance company separate accounts
consisting solely of such Plans (collectively, "Plan Pools"), which will in turn
offer the Fund as an investment option to their participants. Investments in the
Fund may by themselves represent an investment option for a Plan or may be
combined with other investments as part of a pooled investment option for the
Plan. In the latter case, the Fund will require Plans to provide information
regarding the withdrawal order and other characteristics of any pooled
investment option in which the Shares are included prior to a Plan's initial
investment in the Fund. Thereafter, the Fund will require the Plan to provide
information regarding any changes to the withdrawal order and other
characteristics of the pooled investment option before such changes are
implemented. The Fund in its sole discretion may decline to sell Shares to Plans
if the governing withdrawal order or other characteristics of any pooled
investment option in which the Shares are included is determined at any time to
be disadvantageous to the Fund.
Plan participants should contact their Plan administrator or the organization
that provides recordkeeping services if they have questions concerning their
account. Plan administrators and fiduciaries should call 1-800-677-7596 for
information regarding a Plan's account with the Fund.
TRANSACTIONS IN FUND SHARES
Plan participant-directed purchases, exchanges and redemptions of Shares are
handled in accordance with each Plan's specific provisions. Plans may have
different provisions with respect to the timing and method of purchases,
exchanges and redemptions by Plan participants. Plan participants should contact
their Plan administrator for details concerning how they may direct transactions
in Shares. It is the responsibility of the Plan administrator or other Plan
service provider to forward instructions for these transactions to Bankers
Trust.
Purchase orders for Shares that are received by Bankers Trust, as the Transfer
Agent, or other authorized agent of the Fund, prior to the Valuation Time on any
Valuation Day will be effective at that Valuation Time. The Trust and the
Distributor reserve the right to reject any purchase order. Certificates for
Shares will not be issued. Redemption requests will be processed at the NAV next
determined after a request for redemption is received in good order by Bankers
Trust. The Fund reserves the right to require written verification of whether a
<PAGE>
redemption request is directed by Plan participants in accordance with Plan
provisions or is otherwise made by a withdrawing Plan and to establish the
authenticity of this information before processing a redemption request.
Normally, the Fund will make payment for all Shares redeemed under this
procedure within one business day after a request is received. In no event will
payment be made more than seven days after receipt of a redemption request in
good order. The Fund may suspend the right of redemption or postpone the date at
times when both the NYSE and the Fund's custodian bank (Bankers Trust) are
closed, or under any emergency circumstances as determined by the SEC.
The Fund reserves the right to honor any request for redemption by making
payment in whole or in part in securities and in Wrapper Agreements, selected
solely in the discretion of Bankers Trust. To the extent that payment is made in
securities, a shareholder may incur brokerage expenses in converting these
securities into cash. To the extent that a redemption in kind includes Wrapper
Agreements, the Fund will obtain from the Portfolio and assign to the redeeming
Plan or Plan Pool one or more Wrapper Agreements issued by the Wrapper Providers
covering the Portfolio Securities distributed in kind. The terms and conditions
of Wrapper Agreements provided to a redeeming Plan shareholder will be the same
or substantially similar to the terms and conditions of the Wrapper Agreements
held by the Portfolio, including the requirement that the Plan maintain the
restrictions on participant withdrawals noted above. The redeeming Plan or Plan
Pool must execute the assigned Wrapper Agreement(s) in order to obtain the
benefits provided thereunder. Wrapper Agreements are not liquid securities and
may impose restrictions on termination or withdrawal, including notice periods
of one year or longer for non-participant directed withdrawals. The maintenance
of Wrapper Agreements distributed in kind will also require that a Plan or Plan
Pool pay fees to the Wrapper Provider directly, rather than through the Fund,
and that the securities covered by the Wrapper Agreement continue to have a
specified duration or maturity, consist of specified types of securities or be
of a specified investment quality. Accordingly, although a redeeming Plan or
Plan Pool may freely buy and sell securities covered by a Wrapper Agreement, its
management of the securities must be consistent with Wrapper Agreement
requirements in order for it to obtain the benefits of the Wrapper Agreement.
Moreover, a Plan or Plan Pool may be required to obtain at its own expense the
services of a qualified investment manager to execute the Wrapper Agreement and
to manage the securities distributed in kind in conformity with the Wrapper
Agreement provisions and may incur additional administrative expenses in
managing this portfolio. Please see the SAI for additional information
concerning Wrapper Agreements and redemptions in kind.
The Fund has elected, however, to redeem Shares solely in cash up to the lesser
of $500,000 or 1% of the NAV of the Fund during any 90-day period for any one
<PAGE>
shareholder. The Fund anticipates that it will exercise the right to redeem in
kind in the case of redemptions of Shares that are not directed by Plan
participants and that are made on less than twelve months' prior written notice
to Bankers Trust. In such case, or in the case where 5% or more of Plan assets
invested in the Fund are redeemed on any business day, a redemption request will
not be considered received in good order unless the Plan has provided to Bankers
Trust: (i) its current name; (ii) a listing of its trustee(s); (iii) copies of
Plan documents or summaries thereof describing the investment options available
to and the restrictions imposed upon Plan participants; (iv) information
indicating the allocation of Plan assets among available investment options; (v)
for the immediately preceding three year period, a monthly summary of all cash
flow activity for the Plan's investment option in which the Shares are included,
detailed by contribution and benefit payment amounts and amounts transferred to
and from other investment options; and (vi) in the case of Plans subject to
ERISA, identification of a "Qualified Professional Asset Manager" within the
meaning of Department of Labor Prohibited Transaction Class Exemption 84-14
(March 8, 1984). Redemptions of Shares that are not directed by Plan
participants and that are made on less than twelve months' prior written notice
will also be subject to a redemption fee, payable to the Fund, of 2.0% of the
proceeds of the redemption, whether in kind or in cash. However, this redemption
fee shall not apply to redemptions, the proceeds of which are immediately
reinvested in another class of shares of the Fund or in interests in another
investment company or entity that invests exclusively in the Portfolio. The Fund
reserves the right to withhold from redemption proceeds the 2.0% redemption fee
if 5% or more of Plan assets invested in the Fund are redeemed on any business
day pending a determination of whether the redemption fee is applicable. The
Fund may incur costs in obtaining new Wrapper Agreements from Wrapper Providers
to be distributed in kind. These costs will be payable from, and are not
expected to exceed, the 2.0% redemption fee. The redemption price may be more or
less than the shareholder's cost, depending upon the market value of the Fund's
assets (its interest in the Portfolio) at the time.
The offering price is the NAV per Share. Shares may be purchased only in those
states where they may be lawfully sold.
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
The Fund intends to distribute all of its net investment income and net capital
gains, if any, to its shareholders each year. Dividends from net investment
income are declared daily and are paid monthly, and any net capital gains are
distributed annually. An additional annual distribution ("Additional
Distribution") may be paid to satisfy the tax requirements (outlined below) that
the Fund distribute each year substantially all of its investment company
taxable income (see "Tax Considerations").
<PAGE>
Dividends and other distributions paid on each class of the Fund's shares are
calculated at the same time and in the same manner. Dividends on the shares may
be expected to differ based upon each class respective expenses. Dividends and
other distributions are automatically reinvested in additional Shares unless the
Plan participant directs otherwise.
The Fund may declare and pay dividends in amounts which are not equal to the
amount of the net investment income it actually earns. Consequently, in any year
the amount actually distributed may differ from the income earned. If, for any
year, those distributions exceed the income earned, the excess may be considered
a return of capital. On the other hand, if the income earned exceeds the amount
of the dividends distributed, the Fund may make an Additional Distribution of
that excess. To enable the Fund to maintain a stable NAV per Share in the event
of an Additional Distribution, the Trust Board may declare, effective on the
ex-distribution date of an Additional Distribution, a reverse split of the
Shares in an amount that will cause the total number of Shares held by each
shareholder, including Shares acquired on reinvestment of that distribution, to
remain the same as before that distribution was paid.
For example, if the Fund declares an Additional Distribution of 10(cents) per
Share at a time when the NAV per Share is $10.00, a shareholder holding one
Share would receive 0.01 additional Shares on reinvestment of that distribution.
If there were no reverse split, the per Share NAV of the 1.01 Shares held by the
shareholder would be approximately $9.90, and the aggregate value thereof would
be $10.00. If a 1.01-for-1 reverse Share split were declared, however, the
shareholder's holdings would be consolidated back into one Share having an NAV
of $10.00. Thus, a reverse Share split will not affect the value of the total
holdings of a shareholder.
TAX CONSIDERATIONS
The Fund intends to qualify to be treated as a regulated investment company
under the Internal Revenue Code of 1986, as amended.
As a regulated investment company, the Fund will not be subject to U.S. federal
income tax on its investment company taxable income (generally consisting of net
investment income and the excess of net short-term capital gain over net
long-term capital loss, if any) and net capital gain (the excess of net
long-term capital gain over net short-term capital loss), if any, that it
distributes to its shareholders. The Fund intends to distribute to its
shareholders all of its investment company taxable income and net capital gain
at least annually, if necessary through Additional Distributions, and therefore
does not anticipate incurring any federal income tax liability.
<PAGE>
For Plan participants utilizing the Fund as an investment option under their
Plan, dividend and capital gain distributions from the Fund generally will not
be subject to current taxation, but will accumulate on a tax-deferred basis. In
general, Plans are governed by a complex set of tax rules. See your Plan
administrator, your plan's Summary Plan Description, and/or a professional tax
adviser regarding the tax consequences of your participation in your Plan and of
any Plan contributions or withdrawals.
ADDITIONAL INFORMATION ABOUT THE TRUSTS
The Fund is a mutual fund: an investment that pools shareholders' money and
invests it toward a specified goal. The Fund is a separate series of the Trust,
a Massachusetts business trust organized pursuant to a Declaration of Trust
dated February 28, 1992. The Portfolio is a separate subtrust of the Portfolio
Trust, a New York master trust fund organized pursuant to a Declaration of Trust
dated March 27, 1993.
Each Trust reserves the right to add additional series/subtrusts in the future.
There are currently no other funds investing in the Portfolio. Other funds
investing in the Portfolio may have sales charges and/or different expenses than
the Fund, which may affect performance. The Trust also reserves the right to
issue additional classes of shares of the Fund. Each class represents an
identical interest in the Fund's investment portfolio. As a result, the classes
have the same rights, privileges and preferences, except with respect to: (1)
the designation of each class; (2) the expenses allocated exclusively to each
class; and (3) voting rights on matters exclusively affecting a single class.
The Trust Board does not anticipate that there will be any conflicts among the
interests of the holders of the different classes and will take appropriate
action if any such conflict arises. For more information about the different
classes of shares of the Fund, please call 1-800-677-7596.
Each Trust may hold special meetings and mail proxy materials. These meetings
may be called to elect or remove Trustees, change fundamental policies, approve
the Portfolio's investment advisory agreement, or for other purposes.
Shareholders not attending a Trust meeting are encouraged to vote by proxy. The
Transfer Agent will mail proxy materials in advance, including a voting card and
information about the proposals to be voted on.
When matters are submitted for shareholder vote, shareholders of the Fund will
have one vote for each full Share held and proportionate, fractional votes for
fractional Shares held. A separate vote of the Fund is required on any matter
affecting only the Fund on which shareholders are entitled to vote; shareholders
of the Fund are not entitled to vote on Trust matters that do not affect the
Fund
<PAGE>
and do not require a separate vote of the Fund. All series of the Trust will
vote together on certain matters, such as electing Trustees or approving
independent auditors. Under certain circumstances, the shareholders of one of
series of the Trust could control the outcome of these votes. There normally
will be no meetings of shareholders for the purpose of electing Trustees unless
and until such time as less than a majority of Trustees holding office has been
elected by shareholders, at which time the Trustees then in office will call a
shareholders' meeting for the election of Trustees. Any Trustee may be removed
from office upon the vote of shareholders holding at least two-thirds of the
Trust's outstanding shares at a meeting called for that purpose. The Trustees
are required to call such a meeting upon the written request of shareholders
holding at least 10% of the Trust's outstanding shares. The Trust will also
assist shareholders in communicating with one another as provided for in the
1940 Act.
Each subtrust of the Portfolio Trust, including the Portfolio, will vote
separately on any matter involving that subtrust. Holders of interests in all
the subtrusts of the Portfolio Trust, however, will vote together to elect
Trustees of the Portfolio Trust and for certain other matters. The subtrusts of
the Portfolio Trust will vote together or separately on matters in the same
manner, and in the same circumstances, as do the series of the Trust. As with
the Trust, the investors in one or more subtrusts of the Portfolio Trust could
control the outcome of these votes. No subtrust of the Portfolio Trust has any
preference over any other subtrust.
The Trust is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a business trust may,
under certain circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder's incurring financial loss on
account of share holder liability is limited to circumstances in which both
inadequate insurance existed and the Trust itself was unable to meet its
obligations.
The Portfolio Trust was organized as a trust under the laws of the State of New
York. The Portfolio Trust's Declaration of Trust provides that the entities
investing in the Portfolio (e.g., investment companies such as the Fund and
common and commingled trust funds) will each be liable for all obligations of
the Portfolio. However, the risk of the Fund's incurring financial loss on
account of such liability is limited to circumstances in which both inadequate
insurance existed and the Portfolio itself was unable to meet its obligations.
Accordingly, the Trustees of the Trust believe that neither the Fund nor its
shareholders will be adversely affected by reason of the Fund's investing in the
Portfolio.
As of October 30, 1998, Avon Employees Savings & Stock Ownership Plan, Brooklyn,
New York
<PAGE>
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>
BT PYRAMID MUTUAL FUNDS BT PRESERVATION PLUS FUND
INSTITUTIONAL CLASS
INVESTMENT ADVISER OF THE PORTFOLIO AND ADMINISTRATOR
BANKERS TRUST COMPANY
130 Liberty Street
(One Bankers Trust Plaza)
New York, New York 10006
DISTRIBUTOR
ICC DISTRIBUTORS, INC.,
Two Portland Square,
Portland, ME 04101
CUSTODIAN AND TRANSFER AGENT
BANKERS TRUST COMPANY
130 Liberty Street
(One Bankers Trust Plaza)
New York, New York 10006
INDEPENDENT AUDITORS
ERNST & YOUNG LLP
Two Commerce Square,
2001 Market Street,
Philadelphia, Pennsylvania 19103
COUNSEL WILLKIE FARR & GALLAGHER 787 Seventh Avenue, New York, NY 10019
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus, the SAI or the
Fund's official sales literature in connection with the offering of the Shares
and, if given or made, such other information or representations must not be
relied on as having been authorized by the Fund. This Prospectus does not
constitute an offer in any state in which, or to any person to whom, such offer
may not lawfully be made.
Cusip #055847818
STA 491300 (11/98)
o BT PYRAMID MUTUAL FUNDS (BULLET)
BT PRESERVATIONPLUS FUND
INVESTMENT CLASS
Seeks a high level of current income while seeking to maintain a stable value
per share.
PROSPECTUS
NOVEMBER 30, 1998
BT Pyramid Mutual Funds (the "Trust") is an open-end management investment
company (mutual fund). The BT PreservationPlus Fund ("the "Fund") is a separate
series of the Trust and offers separate classes of shares. The shares offered by
this prospectus are the Investment Class of shares (the "Shares"). The Fund
seeks a high level of current income while seeking to maintain a stable value
per share. The Fund is offered solely to participant-directed employee benefit
plans meeting specified criteria.
UNLIKE OTHER MUTUAL FUNDS, THE FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY
INVESTING ALL OF ITS NET INVESTABLE ASSETS IN BT PRESERVATIONPLUS PORTFOLIO (THE
"PORTFOLIO"), A SEPARATE SUBTRUST OF BT INVESTMENT PORTFOLIOS, A NEW YORK MASTER
TRUST FUND (THE "PORTFOLIO TRUST"), WITH AN IDENTICAL INVESTMENT OBJECTIVE. SEE
"SPECIAL INFORMATION CONCERNING THE MASTER-FEEDER FUND STRUCTURE." THE FUND IS
NOT A MONEY MARKET FUND, AND THERE CAN BE NO ASSURANCE THAT IT WILL BE ABLE TO
MAINTAIN A STABLE VALUE PER SHARE OR OTHERWISE ACHIEVE ITS OBJECTIVE.
Please read this Prospectus before investing and keep it on file for future
reference. It contains important information concerning the Fund and the
Portfolio, including how the Portfolio invests and the services available to the
Fund's shareholders. Bankers Trust Company ("Bankers Trust") is the investment
adviser ("Adviser") of the Portfolio.
To learn more about the Fund and the Portfolio, investors can obtain a copy of
the Fund's Statement of Additional Information ("SAI"), dated November 30, 1998,
which has been filed with the Securities and Exchange Commission (the "SEC") and
is incorporated herein by this reference. You may
<PAGE>
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 1-800-677-7596. 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).
SHARES OF THE FUND ARE NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, BANKERS TRUST COMPANY, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
AGENCY. AN INVESTMENT IN THE FUND IS SUBJECT TO RISK THAT MAY CAUSE THE VALUE OF
THE INVESTMENT TO FLUCTUATE, AND WHEN THE INVESTMENT IS REDEEMED, THE VALUE MAY
BE HIGHER OR LOWER THAN THE AMOUNT ORIGINALLY INVESTED BY THE INVESTOR.
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.
ICC DISTRIBUTORS, INC. o Two Portland Square o Portland, Maine o 04101
TABLE OF CONTENTS
The Fund....................................................................3
Who May Invest..............................................................3
Investment Principles and Risks.............................................3
Summary of Fund Expenses....................................................4
The Fund In Detail..........................................................6
Risk Factors: Matching the Fund to Your Investment Needs....................7
Special Information Concerning the Master-Feeder Fund Structure............10
Securities and Investment Practices of the Portfolio.......................11
Performance................................................................14
Management of the Trusts...................................................14
Net Asset Value............................................................16
Shareholder And Account Policies...........................................17
Dividends and Capital Gain Distributions...................................19
Additional Information about the Trusts....................................20
THE FUND
The Fund's investment objective is a high level of current income while seeking
to maintain a stable value per Share. The Fund seeks to achieve its investment
objective by investing all of its net investable assets in the Portfolio. The
Portfolio will seek to achieve this objective by investing in a diversified
portfolio of fixed income securities, money market instruments, futures, options
and other instruments ("Portfolio Securities") and by entering into contracts
("Wrapper Agreements") with financial institutions, such as insurance companies
and banks, that are intended to stabilize the value per Share of the Fund. See
"Risk Factors: Matching the Fund to Your Investment Needs."
There can be no assurance that the Fund will achieve its objective.
WHO MAY INVEST
Shares of the Fund are offered solely to participant-directed employee benefit
plans meeting specified criteria (each a "Plan" and together "Plans"). Shares
are offered to Plans either directly or through vehicles such as bank collective
funds or insurance company separate accounts consisting solely of such Plans.
The Fund is designed for investors seeking preservation and stability of
principal and a level of current income higher than money market mutual funds
over most time periods.
The Fund is not in itself a balanced investment plan. Plan participants should
consider their investment objective and tolerance for risk when making an
investment decision. When Shares are redeemed, they may be worth more or less
than what they originally cost, although the nature of the Portfolio's
investments
<PAGE>
- -- particularly the Wrapper Agreements -- are intended by the Fund to stabilize
the value per Share. A Plan offering investments in the Fund must impose certain
restrictions on the ability of a Plan participant to exchange Shares for similar
investment options. See "Account Information."
INVESTMENT PRINCIPLES AND RISKS
The value of most of the Portfolio Securities will fluctuate based upon changes
in domestic or foreign interest rates, the credit quality of the issuer, market
conditions, and other economic and political news. In general, the prices of
Portfolio Securities will rise when interest rates fall, and fall when interest
rates rise. The Wrapper Agreements are intended to stabilize the value per Share
by offsetting fluctuations in the value of the Portfolio Securities under
certain conditions. Under most circumstances, the combination of Portfolio
Securities and Wrapper Agreements held by the Portfolio is expected to provide
Fund shareholders with a constant net asset value ("NAV") per Share and a
current rate of return that is higher than most money market mutual funds over
most time periods. However, there can be no guarantee that the Portfolio will
maintain a constant NAV, and consequently that the Fund will be able to maintain
a constant NAV per Share. There is also no guarantee that any Fund shareholder
or Plan participant will realize the same investment return as might be realized
by a direct investment in the Portfolio Securities without the Wrapper
Agreements or that the Fund's rate of return will be higher than that of most
money market mutual funds.
The Portfolio incurs costs in connection with its investment in Wrapper
Agreements which will reduce the Fund's investment return. The Wrapper
Agreements may not insulate the Portfolio from loss if an issuer of Portfolio
Securities defaults on payments of interest or principal. Additionally, an
issuer of a Wrapper Agreement could default on its obligations under the
agreement or the Portfolio might be unable to obtain Wrapper Agreements covering
all of its assets. Either type of default or the inability to obtain Wrapper
Agreements might result in a decline in the value of the Shares. Moreover, in
valuing a Wrapper Agreement, the Board of Trustees of the Portfolio Trust may
determine that such agreement should not be carried by the Portfolio at a value
sufficient to maintain the Portfolio's NAV per Share.
Bankers Trust may use various investment techniques to hedge the Portfolio's
risks, but there is no guarantee that these strategies will work as intended.
See "Risk Factors: Matching the Fund to Your Investment Needs" for more
information.
<PAGE>
SUMMARY OF FUND EXPENSES
Annual operating expenses are paid out of the assets of the Portfolio and the
Fund. The Portfolio pays an investment advisory fee and an administrative
services fee to Bankers Trust. The Fund incurs additional administrative
expenses such as maintaining shareholder records and furnishing shareholder
statements. The Fund must also provide semi-annual financial reports.
The following tables are intended to assist investors in understanding the
expenses associated with investing in the Fund. The table provides (i) a summary
of expenses related to purchases and redemptions (sales) of Shares and the
anticipated annual operating expenses of the Fund and the Portfolio, in the
aggregate, as a percentage of average daily net assets and (ii) an example
illustrating the dollar cost of such expenses on a $1,000 investment in the
Fund.
THE TRUSTEES OF THE TRUST BELIEVE THAT THE AGGREGATE EXPENSES OF THE FUND
(INCLUDING ITS PROPORTIONATE SHARE OF THE PORTFOLIO'S EXPENSES) WILL BE LESS
THAN OR APPROXIMATELY EQUAL TO THE EXPENSES THAT THE FUND WOULD INCUR IF THE
TRUST RETAINED THE SERVICES OF AN INVESTMENT ADVISER AND THE ASSETS OF THE FUND
WERE INVESTED DIRECTLY IN PORTFOLIO SECURITIES AND WRAPPER AGREEMENTS.
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge on Purchases None
Maximum Sales Charge on Reinvested Dividends None
Maximum Redemption Fee 2.0%
Shareholder transaction expenses are charges paid when investors buy, redeem or
exchange Shares. Under normal circumstances, redemptions of Shares that are
directed by Plan participants are not subject to a redemption fee. Redemptions
of Shares that are not directed by Plan participants and that are made on less
than twelve months' prior written notice to the Fund are subject to a redemption
fee payable to the Fund of 2% of the proceeds of the redemption. See
"Transactions in Fund Shares."
<PAGE>
ANNUAL OPERATING EXPENSES (as a percentage of the Fund's projected average daily
net assets of the Fund)
Investment advisory fee (after reimbursements or waiver)* 0.20%
12b-1 fees None
Other expenses (after reimbursement or waiver)** 0.35
Total operating expenses (after reimbursements or waiver) 0.55%
* The Fund does not directly pay an investment advisory fee; the amount shown
reflects the Fund's proportionate share of the Portfolio's investment advisory
fee.
** "Other expenses" include premiums paid for Wrapper Agreements and certain
additional services provided to the Fund and the Portfolio by Bankers Trust.
Wrapper Agreements are contracts entered into by the Portfolio that are intended
to stabilize the value per Share of the Fund (see "Investment Principles and
Risks").
<TABLE>
<CAPTION>
EXAMPLE
One Year Three Years Five Years Ten Years
<S> <C> <C> <C> <C>
An investor would pay the following expenses on a $1,000 investment assuming (1)
5% annual return and (2) redemption at the end of each time
period. No redemption fee has been included. $6 $18 $31 $69
</TABLE>
The expense table and the example above show the estimated costs and expenses
that an investor will bear directly or indirectly as a shareholder of the Fund.
Bankers Trust has voluntarily agreed to waive a portion of its investment
advisory fee payable by the Portfolio. Without such waiver, the Portfolio's
investment advisory fee would have been 0.35% of its average daily net assets.
Bankers Trust has also voluntarily agreed to waive a portion of its
administration fees and reimburse certain expenses (included in "Other
Expenses") payable by the Portfolio. Without such waiver or reimbursements, the
Portfolio's "Other Expenses" would have been 0.71%. Bankers Trust may terminate
these voluntary waivers and reimbursements at any time in its sole discretion
without notice to shareholders. In the absence of these waivers, "Total
Operating Expenses" of the Shares would have been 1.06%. 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%.
<PAGE>
Shares of the Fund are sold by ICC Distributors, Inc. ("ICC," or the
"Distributor"). For more information about the Fund's and the Portfolio's
expenses see "Management of the Trusts" and "Net Asset Value" herein. The Fund
and Bankers Trust have authorized one or more brokers to accept on its behalf
purchase and redemption orders. Such brokers are authorized to designate other
intermediaries to accept purchase and redemption orders on the Fund's behalf.
The Fund 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.
As of the date of this prospectus, the Fund has issued four classes of shares,
and may issue additional classes in the future. The Fund offers each class of
shares by a separate prospectus. Because the expenses vary between classes,
performance will vary with respect to each class. Additional information
concerning each class of shares is available from Bankers Trust, as
Administrator, at 1-800-677-7596.
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 period indicated and has been audited by Ernst & Young LLP, the Fund's
independent auditors, whose report thereon appears in the Fund's Annual Report
which is incorporated by reference.
Investment Class Shares
For the period
October 1, 1997* through
September 30, 1998
Per Share Operating Performance:
Net Asset Value, Beginning of Period .............. $10.00
------
Income from Investment Operations
Net Investment Income........................ 0.56
Distributions to Shareholders
Net Investment Income........................ (0.56)
------
Net Asset Value, End of Period..................... $10.00
------
<PAGE>
Total Investment Return............................ 5.76%
Supplemental Data and Ratios:
Net Assets, End of Period (000s omitted)..... $15,003
Ratios to Average Net Assets:**
Net Investment Income.................. 5.65%
Net Expenses, Including Expenses of
the PreservationPlus Portfolio....... 0.55%
Decrease Reflected in Above Expense
Ratio Due to Absorption of Expenses
by Bankers Trust..................... 0.51%
- -----------------
* Commencement of operations
** Includes Fund share of Portfolio expenses
THE FUND IN DETAIL
INVESTMENT OBJECTIVE AND POLICIES
The Fund seeks to achieve its investment objective by investing all of its net
investable assets in the Portfolio, which has the same investment objective as
the Fund. Since the investment characteristics of the Fund will correspond
directly to those of the Portfolio, the following is a discussion of the various
investments of and techniques employed by the Portfolio. Additional information
about the investment policies of the Portfolio appears in "Risk Factors:
Matching the Fund to Your Investment Needs" herein and in the SAI. There can be
no assurance that the Fund's and the Portfolio's investment objective will be
achieved. The 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 the Master-Feeder Fund Structure" herein.
The Portfolio's investment objective is a high level of current income while
seeking to maintain a stable value per Share. The Portfolio expects to invest at
least 65% of its total assets in fixed income securities ("Fixed Income
Securities") of varying maturities rated, at the time of purchase, in one of the
top three long-term rating categories by Standard & Poor's ("S&P"), Moody's
Investors Service,
<PAGE>
Inc. ("Moody's"), or Duff & Phelps Credit Rating Co., or comparably rated by
another nationally recognized statistical rating organization ("NRSRO"), or, if
not rated by a NRSRO, of comparable quality as determined by Bankers Trust in
its sole discretion.
In addition, the Portfolio will enter into Wrapper Agreements with insurance
companies, banks or other financial institutions ("Wrapper Providers") that are
rated, at the time of purchase, in one of the top two long-term rating
categories by Moody's or S&P. There is no active trading market for Wrapper
Agreements, and none is expected to develop; therefore, they will be considered
illiquid. At the time of purchase, the value of all of the Wrapper Agreements
and any other illiquid securities will not exceed 15% of the Portfolio's net
assets.
The Fixed Income Securities include fixed income securities issued or guaranteed
by the U.S. government, or any agency or instrumentality thereof; publicly or
privately issued U.S. dollar-denominated debt of domestic or foreign entities,
including corporate, sovereign or supranational entities; publicly issued U.S.
dollar denominated asset-backed securities issued by domestic or foreign
entities; mortgage pass-through securities issued by the Government National
Mortgage Association ("GNMA"), the Federal Home Loan Mortgage Corporation
("FHLMC") or the Federal National Mortgage Association ("FNMA"); mortgage
pass-through securities issued by non-government entities such as banks,
mortgage lenders, or other financial institutions, including private label
mortgage pass-through securities and whole loans; collateralized mortgage
obligations ("CMOs") and real estate mortgage investment conduits ("REMICs"),
which are mortgage-backed debt instruments that make payments of principal and
interest at a variety of intervals and are collateralized by any of the
aforementioned mortgage pass-through securities or whole loans; and obligations
issued or guaranteed, or backed by securities issued or guaranteed by, the U.S.
government, or any of its agencies or instrumentalities, including Certificates
of Accrual Treasury Securities ("CATS"), Treasury Income Growth Receipts
("TIGRs"), and Treasury Receipts ("TRs") and zero coupon securities (securities
consisting solely of the principal or interest component of a U.S. Treasury
bond).
The Portfolio Securities purchased by the Portfolio also include short-term
investments rated, at the time of purchase, in one of the top two short-term
rating categories by an NRSRO or, if unrated, of comparable quality in the
opinion of the Adviser, including commercial paper and time deposits,
certificates of deposit, bankers' acceptances and other instruments of foreign
and domestic banks and thrift institutions, and shares of money market mutual
funds. The Portfolio may invest up to 35% of its total assets in such short-term
investments for purposes of liquidity and up to 100% of its total assets in such
instruments for temporary defensive purposes. The Portfolio may also invest in
<PAGE>
and utilize the following investments and investment techniques and practices:
Rule 144A securities (as defined in "Securities and Investment Practices of the
Portfolio"), when-issued and delayed delivery securities, repurchase agreements,
reverse repurchase agreements and dollar rolls, and options and futures
contracts. See "Risk Factors: Matching the Fund to Your Investment Needs" in
this Prospectus and in the SAI for more information.
In selecting securities for the Portfolio, the Adviser attempts to maintain an
average portfolio duration of the Portfolio Securities within a range of 2.5 to
4.5 years. Duration is a measure of the expected life of a Fixed Income Security
on a present value basis which incorporates the security's yield, coupon
interest payments, final maturity and call features into a single measure.
RISK FACTORS: MATCHING THE FUND TO YOUR INVESTMENT NEEDS
The following pages contain more detailed information about types of instruments
in which the Portfolio may invest and strategies the Adviser may employ in
pursuit of the Portfolio's investment objective. A summary of the risks and
restrictions associated with these investments and investment practices is
included as well.
The Adviser may not buy all of these instruments or use all of these techniques
to the full extent permitted unless it believes that doing so will help the
Portfolio achieve its objective. Current holdings and investment strategies will
be described in the financial reports of the Fund and the Portfolio, which will
be sent to Fund shareholders twice a year.
RISKS OF INVESTING IN FIXED INCOME SECURITIES. All fixed income investments have
exposure to three types of risks. Credit risk is the possibility that the issuer
of a Fixed Income Security will fail to make timely payments of either interest
or principal to the Portfolio. Interest rate risk is the potential for
fluctuations in the prices of Fixed Income Securities due to changing interest
rates. Income risk is the potential for decline in the Portfolio's income due to
the investment or reinvestment of assets in Fixed Income Securities when market
interest rates are falling.
Although there is no assurance that it will achieve its objective, the Portfolio
attempts to enhance yield while minimizing these risks. If an issuer of a Fixed
Income Security or a Wrapper Provider becomes financially impaired, it may
default on its obligations and the Portfolio's interest income may be reduced or
the Portfolio may incur a loss of principal. This is an example of credit risk.
In order to minimize credit risk, the Portfolio's assets are allocated among a
diversified group of issuers. Credit analysis is applied to every security and
Wrapper Provider selected for the Portfolio. Once purchased, a security and, in
<PAGE>
the case of a Wrapper Agreement, the Wrapper Provider is monitored regularly by
Bankers Trust for maintenance of adequate credit characteristics. In the event
that the rating of a security or Wrapper Provider is downgraded by one or more
NRSRO, the Portfolio may elect to retain the security or applicable Wrapper
Agreement. However, some Wrapper Agreements may require that Fixed Income
Securities that fall below investment grade be liquidated within a set time
period, typically within one year or less. The Portfolio may elect not to cover
with Wrapper Agreements any Fixed Income Securities with a remaining maturity of
60 days or less and any cash or short term investments.
When interest rates rise, Fixed Income Security prices generally decline. When
interest rates fall, Fixed Income Security prices generally increase. Generally,
the longer the maturity of the Fixed Income Security, the higher its yield,
although longer-term Fixed Income Securities tend to offer less price stability
in response to changes in interest rates than do shorter-term investments.
Therefore, portfolios with shorter average maturities tend to have less risk and
lower returns than portfolios with longer average maturities. This is an example
of interest rate risk. In order to help maintain an average portfolio duration
of 2.5 to 4.5 years, the Portfolio will invest primarily in Fixed Income
Securities of short- to intermediate-term maturities. This will help to minimize
interest rate risk. In addition, unlike most traditional fixed income
portfolios, the Portfolio purchases Wrapper Agreements that should offset
substantially all of the price fluctuations typically associated with
longer-term Fixed Income Securities.
It is important to note the distinction between the Portfolio and short-term
investments such as money market funds. The securities held by the Portfolio
have a longer average maturity than those of money market funds. Because a money
market fund has a shorter average maturity, its yield will track the direction
of current market rates of return more closely than the Portfolio. For example,
in a rising interest rate environment, money market yields may rise more quickly
than will the Portfolio's. In a falling interest rate environment, money market
yields may fall more quickly than the Portfolio's. Over the long-term, however,
intermediate and long-term Fixed Income Securities such as those purchased by
the Portfolio have historically offered higher yields than short-term
investments (i.e., money market funds).
RISKS OF WRAPPER AGREEMENTS. Each Wrapper Agreement obligates the Wrapper
Provider to maintain the "Book Value" of a portion of the Portfolio's assets
("Covered Assets") up to a specified maximum dollar amount, upon the occurrence
of certain specified events. The Book Value of the Covered Assets is their
purchase price (i) plus interest on the Covered Assets at a rate specified in
the Wrapper Agreement ("Crediting Rate"), and (ii) less an adjustment to reflect
any defaulted securities. The Crediting Rate used in computing Book Value is
calculated by a formula specified in the Wrapper Agreement and is adjusted
<PAGE>
periodically. In the case of Wrapper Agreements purchased by the Portfolio, the
Crediting Rate is the actual interest earned on the Covered Assets, or an
index-based approximation thereof, plus or minus an adjustment for an amount
receivable from or payable to the Wrapper Provider based on fluctuations in the
market value of the Covered Assets. As a result, while the Crediting Rate will
generally reflect movements in the market rates of interest, it may at any time
be more or less than these rates or the actual interest income earned on the
Covered Assets. The Crediting Rate may also be impacted by defaulted securities
and by increases and decreases of the amount of Covered Assets as a result of
contributions and withdrawals tied to the sale and redemption of Shares.
Furthermore, the premiums due Wrapper Providers in connection with the
Portfolio's investments in Wrapper Agreements are offset against and thus reduce
the Crediting Rate. These premiums are generally paid quarterly. In no event
will the Crediting Rate fall below zero percent under the Wrapper Agreements
entered into by the Portfolio.
Under the terms of a typical Wrapper Agreement, if the market value (plus
accrued interest on the underlying securities) of the Covered Assets is less
than their Book Value at the time the Covered Assets are liquidated in order to
provide proceeds for withdrawals of Portfolio interests resulting from
redemptions of Shares by Plan participants, the Wrapper Provider becomes
obligated to pay to the Portfolio the difference. Conversely, the Portfolio
becomes obligated to make a payment to the Wrapper Provider if it is necessary
for the Portfolio to liquidate Covered Assets at a price above their Book Value
in order to make withdrawal payments. (Withdrawals generally will arise when the
Fund must pay shareholders who redeem their Shares.) Because it is anticipated
that each Wrapper Agreement will cover all Covered Assets up to a specified
dollar amount, if more than one Wrapper Provider becomes obligated to pay to the
Portfolio the difference between Book Value and market value (plus accrued
interest on the underlying securities), each Wrapper Provider will be obligated
to pay a pro-rata amount in proportion to the maximum dollar amount of coverage
provided. Thus, the Portfolio will not have the option of choosing which Wrapper
Agreement to draw upon in any such payment situation.
The terms of the Wrapper Agreements vary concerning when these payments must
actually be made between the Portfolio and the Wrapper Provider. In some cases,
payments may be due upon disposition of the Covered Assets; other Wrapper
Agreements provide for settlement only upon termination of the Wrapper Agreement
or total liquidation of the Covered Assets. A Wrapper Provider's obligation to
make payments to the Portfolio may be subject to prior notice requirements for
certain types of withdrawals from the Portfolio. For example, the Wrapper
Agreement may require that one year's notice be provided to obtain Book Value
payments with respect to withdrawals to provide liquidity for Fund redemptions
that are not directed by Plan participants. The Portfolio
<PAGE>
does not anticipate that it will be required to liquidate Covered Assets for the
purpose of paying such withdrawals before any such notice period has expired.
However, in the unlikely event that this occurs, the NAV of the Portfolio, and
hence of the Shares, may be reduced. Additionally, a Wrapper Provider's
obligation to make payments for Plan withdrawals after twelve months' prior
notice (as opposed to those directed by Plan participants) may require
adjustments to the Crediting Rate and increases in the Portfolio's holdings of
short term investments, which might adversely affect the return of the Portfolio
and the Fund. Please see discussion of "Liquidity Reserve" herein.
The Fund expects that the use of Wrapper Agreements by the Portfolio will under
most circumstances permit the Fund to maintain a constant NAV per Share and to
pay dividends that will generally reflect over time both the interest income of,
and market gains and losses on, the Covered Assets held by the Portfolio less
the expenses of the Fund and the Portfolio. However, there can be no guarantee
that the Fund will maintain a constant NAV per Share or that any Fund
shareholder or Plan participant will realize the same investment return as might
be realized by investing directly in the Portfolio assets other than the Wrapper
Agreements. For example, a default by the issuer of a Portfolio Security or a
Wrapper Provider on its obligations might result in a decrease in the value of
the Portfolio assets and, consequently, the Shares. The Wrapper Agreements
generally do not protect the Portfolio from loss if an issuer of Portfolio
Securities defaults on payments of interest or principal. Additionally, a Fund
shareholder may realize more or less than the actual investment return on the
Portfolio Securities depending upon the timing of the shareholder's purchases
and redemption of Shares, as well as those of other shareholders. Furthermore,
there can be no assurance that the Portfolio will be able at all times to obtain
Wrapper Agreements. Although it is the current intention of the Portfolio to
obtain such agreements covering all of its assets (with the exceptions noted),
the Portfolio may elect not to cover some or all of its assets with Wrapper
Agreements should Wrapper Agreements become unavailable or should other
conditions such as cost, in Bankers Trust's sole discretion, render their
purchase inadvisable.
If, in the event of a default of a Wrapper Provider, the Portfolio were unable
to obtain a replacement Wrapper Agreement, participants redeeming Shares might
experience losses if the market value of the Portfolio's assets no longer
covered by the Wrapper Agreement is below Book Value. The combination of the
default of a Wrapper Provider and an inability to obtain a replacement agreement
could render the Portfolio and the Fund unable to achieve their investment
objective of maintaining a stable NAV per Share. If the Board of Trustees of the
Portfolio Trust (the "Portfolio Trust Board") determines that a Wrapper Provider
is unable to make payments when due, that Board may assign a fair value to the
Wrapper Agreement that is less than the difference between the Book Value and
the market value (plus accrued interest on the underlying securities) of the
<PAGE>
applicable Covered Assets and the Portfolio might be unable to maintain NAV
stability.
Some Wrapper Agreements require that the Portfolio maintain a specified
percentage of its total assets in short-term investments ("Liquidity Reserve").
These short-term investments must be used for the payment of withdrawals from
the Portfolio and Portfolio expenses. To the extent the Liquidity Reserve falls
below the specified percentage of total assets, the Portfolio is obligated to
direct all net cash flow to the replenishment of the Liquidity Reserve. The
obligation to maintain a Liquidity Reserve may result in a lower return for the
Portfolio and the Fund than if these funds were invested in longer-term Fixed
Income Securities. The Liquidity Reserve required by all Wrapper Agreements is
not expected to exceed 20% of the Portfolio's total assets. However, the
Liquidity Reserve amount may be required to be increased above this limit as a
result of anticipated Plan redemptions within one year.
Wrapper Agreements also require that the Covered Assets have a specified
duration or maturity, consist of specified types of securities or be of a
specified investment quality. The Portfolio will purchase Wrapper Agreements
whose criteria in this regard are consistent with the Portfolio's (and the
Fund's) investment objective and policies as described in this Prospectus.
Wrapper Agreements may also require the disposition of securities whose ratings
are downgraded below a certain level. This may limit the Portfolio's ability to
hold such downgraded securities. Please see the SAI for additional information
concerning Wrapper Agreements.
DERIVATIVES. The Portfolio may invest in various instruments, including the
Wrapper Agreements, that are commonly known as "derivatives." Generally, a
derivative is a financial arrangement the value of which is based on, or
"derived" from, a traditional security, asset or market index. Some derivatives
such as mortgage-related and other asset-backed securities are in many respects
like any other investments, although they may be more volatile or less liquid
than more traditional debt securities. There are, in fact, many different types
of derivatives and many different ways to use them. There are a range of risks
associated with those uses. Futures contracts and options are commonly used for
traditional hedging purposes to attempt to protect an investor from exposure to
changing interest rates, securities prices or currency exchange rates and for
cash management purposes as a low cost method of gaining exposure to a
particular securities market without investing directly in those securities.
However, some derivatives are used for leverage, which tends to magnify the
effect of an instrument's price changes as market conditions change. Leverage
involves the use of a small amount of money to control a large amount of
financial assets and can, in some circumstances, lead to significant losses.
Bankers Trust uses derivatives only in circumstances where it believes they
offer the most economic
<PAGE>
means of improving the risk/reward profile of the Portfolio. Derivatives will
not be used to increase portfolio risk above the level that could be achieved
using only traditional investment securities or to acquire exposure to changes
in the value of assets or indexes that by themselves would not be purchased for
the Portfolio. The use of derivatives for non-hedging purposes may be considered
speculative. A further description of the derivatives that the Portfolio may use
and some of their associated risks is found in "Securities and Investment
Practices of the Portfolio."
PORTFOLIO TURNOVER. The annual portfolio turnover rate measures the frequency
that the Portfolio sells and replaces the value of its securities within one
year. A portfolio turnover rate of 100% means that the Portfolio sold and
purchased investments equal to the average value of the Portfolio for a
particular time period. High turnover can increase the Fund's transaction costs,
thereby lowering its returns, and may increase your tax liability. The portfolio
manager does not have a target portfolio turnover rate. The turnover will depend
on the portfolio manager's assessment of how often to trade, in light of market
conditions and the fund objective.
YEAR 2000 MATTERS. Like other mutual funds, financial and business organizations
and individuals around the world, the Fund could be adversely affected if the
computer systems used by Bankers Trust and other service providers do not
properly process and calculate date-related information and data from and after
January 1, 2000. This is commonly known as the "Year 2000 Problem." Bankers
Trust is taking steps that it believes are reasonably designed to address the
Year 2000 Problem with respect to computer systems that it uses and to obtain
reasonable assurances that comparable steps are being taken by the Fund's other
major service providers. At this time, however, there can be no assurance that
these steps will be sufficient to avoid any adverse impact to the Fund nor can
there be any assurance that the Year 2000 Problem will not have an adverse
effect on the companies whose securities are held by the Fund or on global
markets or economies, generally.
SPECIAL INFORMATION CONCERNING THE MASTER-FEEDER FUND STRUCTURE
Unlike other mutual funds that directly acquire and manage their own portfolio
securities, the Fund seeks to achieve its investment objective by investing all
of its net investable assets in the Portfolio, a separate subtrust of a
registered investment company with the same investment objective as the Fund.
Therefore, a Fund shareholder's interest in the Portfolio's assets is indirect.
In addition to selling a beneficial interest to the Fund, the Portfolio may sell
beneficial interests to other mutual funds or institutional investors. Such
investors will invest in the
<PAGE>
Portfolio on the same terms and conditions and will pay a proportionate share of
the Portfolio's expenses. However, the other investors investing in the
Portfolio are not required to sell their shares or other interests at the same
public offering price as the Fund, due to variations in sales commissions and
other operating expenses. Therefore, investors in the Fund should be aware that
these differences may result in differences in returns experienced by investors
in the different entities that invest in the Portfolio. Such differences in
returns are also present in other mutual fund structures. Information concerning
other holders of interests in the Portfolio is available from Bankers Trust, as
the Administrator, at 1-800-677-7596.
The master-feeder fund structure is relatively complex, so shareholders should
carefully consider this investment approach. Smaller investors in the Portfolio
may be materially affected by the actions of larger investors in the Portfolio.
For example, if a large investor withdraws from the Portfolio, the remaining
investors may experience higher pro rata operating expenses, thereby producing
lower returns (however, this possibility exists as well for traditionally
structured funds that have large investors). Additionally, the Portfolio may
become less diverse, resulting in increased portfolio risk. Also, investors with
a greater pro rata ownership in the Portfolio could have effective voting
control of its operations. Except as permitted by the SEC, whenever the Trust is
requested to vote on matters pertaining to the Portfolio, the Trust will hold a
meeting of shareholders of the Fund and will cast all of its votes in the same
proportion as the votes of the Fund's shareholders. Fund shareholders who do not
vote will not affect the Trust's votes on the Portfolio's matters; the Trust's
votes representing Fund shareholders not voting will be voted by the Trustees or
officers of the Trust in the same proportion as the Fund shareholders who do, in
fact, vote. Certain changes in the Portfolio's investment objective, policies or
restrictions may require the Fund to withdraw its interest in the Portfolio. Any
such withdrawal could result in a distribution "in kind" of Portfolio assets (as
opposed to a cash distribution from the Portfolio). If securities are
distributed, the Fund could incur brokerage, tax or other charges in converting
the securities to cash. In addition, the distribution in kind may result in a
less diversified portfolio of investments or adversely affect the liquidity of
the Fund. Notwithstanding the above, there are other means for meeting
redemption requests, such as borrowing. The Fund may withdraw its investment
from the Portfolio at any time, if the Board of Trustees of the Trust (the
"Trust Board") determines that it is in the best interests of the shareholders
of the Fund to do so. Upon any such withdrawal, the Trust Board would consider
what action might be taken, including the investment of all the assets of the
Fund in another pooled investment entity having the same investment objective as
the Fund or the retaining of an investment adviser to manage the Fund's assets
in accordance with the investment policies described herein with respect to the
Portfolio.
<PAGE>
The Fund's investment objective is not a fundamental policy and may be changed
upon notice to, but without the need for approval of, its shareholders. If there
is a change in the Fund's investment objective, its shareholders should consider
whether the Fund remains an appropriate investment in light of their
then-current needs. The investment objective of the Portfolio also is not a
fundamental policy. Shareholders of the Fund will receive 30 days' prior written
notice with respect to any change in the investment objective of the Fund or the
Portfolio. See "Investment Restrictions" in the SAI for a description of the
fundamental policies of the Portfolio that cannot be changed without approval by
"the vote of a majority of the outstanding voting securities" (as defined in the
Investment Company Act of 1940 (the "1940 Act")) of the Portfolio.
SECURITIES AND INVESTMENT PRACTICES OF THE PORTFOLIO
U.S. GOVERNMENT SECURITIES. U.S. government securities are high-quality debt
securities issued or guaranteed by the U.S. Treasury or by an agency or
instrumentality of the U.S. government. Not all U.S. government securities are
backed by the full faith and credit of the United States. For example,
securities issued by the Farm Credit Banks or by the FNMA are supported by the
instrumentality's right to borrow money from the U.S. Treasury under certain
circumstances. However, securities issued by certain other U.S. agencies or
instrumentalities are supported only by the credit of the entity that issued
them.
OTHER U.S. DOLLAR-DENOMINATED FIXED INCOME SECURITIES. Bonds and other debt
instruments are used by issuers to borrow money from investors. The issuer pays
the investor a fixed or variable rate of interest and must repay the amount
borrowed at maturity. Some debt securities, such as zero coupon bonds, do not
pay current interest but are purchased at a discount from their face values.
Debt securities, loans and other direct debt have varying degrees of quality and
varying levels of sensitivity to changes in interest rates. Longer-term bonds
are generally more sensitive to interest rate changes than short-term bonds.
U.S. DOLLAR-DENOMINATED SOVEREIGN AND SUPRANATIONAL FIXED INCOME SECURITIES.
Debt instruments issued or guaranteed by foreign governments, agencies and
supranational organizations ("sovereign debt obligations"), especially sovereign
debt obligations of developing countries, may involve a high degree of risk. The
issuer of the obligation or the governmental authorities that control the
repayment of the debt may be unable or unwilling to repay principal and interest
when due and may require renegotiation or rescheduling of debt payments. In
addition, prospects for repayment of principal and interest may depend on
political as well as economic factors.
<PAGE>
MORTGAGE-BACKED SECURITIES. The Portfolio may purchase mortgage-backed
securities issued by the U.S. government, its agencies or instrumentalities and
non-governmental entities such as banks, mortgage lenders or other financial
institutions. Mortgage-backed securities include mortgage pass-through
securities, mortgage-backed bonds and mortgage pay-through securities. A
mortgage pass-through security is a pro rata interest in a pool of mortgages
where the cash flow generated from the mortgage collateral is passed through to
the security holder. A mortgage-backed bond is a general obligation of the
issuer, payable out of the issuer's general funds and additionally secured by a
first lien on a pool of mortgages. Mortgage pay-through securities exhibit
characteristics of both pass-through and mortgage-backed bonds. The mortgage
pass-through securities issued by non-governmental entities such as banks,
mortgage lenders or other financial institutions in which the Portfolio may
invest include private label mortgage pass-through securities and whole loans.
Mortgage-backed securities also include other debt obligations secured by
mortgages on commercial real estate or residential properties. Other types of
mortgage-backed securities will likely be developed in the future, and the
Portfolio may invest in them if Bankers Trust determines they are consistent
with the Portfolio's investment objective and policies.
Unlike ordinary Fixed Income Securities, which generally pay a fixed rate of
interest and return principal upon maturity, mortgage-backed securities repay
both interest income and principal as part of their periodic payments. Because
the mortgages underlying mortgage-backed certificates can be prepaid at any time
by homeowners or corporate borrowers, mortgage-backed securities give rise to
certain unique "pre-payment" risks. Prepayment risk or call risk is the
likelihood that, during periods of falling interest rates, securities with high
stated interest rates will be prepaid (or "called") prior to maturity, requiring
the Portfolio to invest the proceeds at generally lower interest rates.
COLLATERALIZED MORTGAGE OBLIGATIONS. CMOs are pay-through securities
collateralized by mortgages or mortgage-backed securities. CMOs are issued in
classes and series that have different maturities and often are retired in
sequence. The issuer of a series of CMOs may elect to be treated as a REMIC.
ASSET-BACKED SECURITIES. Asset-backed securities have structural characteristics
similar to mortgage-backed securities. However, the underlying assets are not
first lien mortgage loans or interests therein but include assets such as motor
vehicle installment sale contracts, other installment sale contracts, home
equity loans, leases of various types of real and personal property, and
receivables from revolving credit (credit card) agreements. Such assets are
securitized through the use of trusts or special purpose corporations. Payments
or distributions of principal and interest on asset-backed securities may be
guaranteed up to certain amounts and for a certain time period by a letter of
<PAGE>
credit or a pool insurance policy issued by a financial institution unaffiliated
with the issuer, or other credit enhancements may be present.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities do not have the benefit
of the same type of security interest in the related collateral. Credit card
receivables are generally unsecured, and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, many of which
give such debtors the right to avoid payment of certain amounts owed on the
credit cards, thereby reducing the balance due. There is the risk in connection
with automobile receivables that recoveries on repossessed collateral may not,
in some cases, be available to support payments on those securities.
U.S. DOLLAR-DENOMINATED FOREIGN SECURITIES. The Portfolio may invest a portion
of its assets in the dollar-denominated debt securities of foreign companies.
Investing in the securities of foreign companies involves more risks than
investing in securities of U.S. companies. Their value is subject to economic
and political developments in the countries where the companies operate and to
changes in foreign currency values. Values may also be affected by foreign tax
laws, changes in foreign economic or monetary policies, exchange control
regulations and regulations involving prohibitions on the repatriation of
foreign currencies.
In general, less information may be available about foreign companies than about
U.S. companies, and foreign companies are generally not subject to the same
accounting, auditing and financial reporting standards as are U.S. companies.
Foreign securities markets may be less liquid and subject to less regulation
than the U.S. securities markets. The costs of investing outside the United
States frequently are higher than those in the United States. These costs
include relatively higher brokerage commissions and foreign custody expenses.
ZERO COUPON SECURITIES. Zero Coupon Securities including CATS, TIGRs and TRs,
are the separate income or principal components of a debt instrument. These
involve risks that are similar to those of other debt securities, although they
may be more volatile, and the value of certain zero coupon securities moves in
the same direction as interest rates. Zero coupon bonds do not make regular
interest payments.
RULE 144A SECURITIES. Rule 144A Securities are securities that are not
registered for sale under the federal securities laws but can be resold to
institutions pursuant to Rule 144A under the Securities Act of 1933. Provided
that a dealer or institutional trading market in such securities exists, these
restricted securities are treated as exempt from the Portfolio's 15% limit on
illiquid securities. Under the supervision of the Portfolio Trust Board, Bankers
<PAGE>
Trust determines the liquidity of restricted securities; and through reports
from Bankers Trust, the Portfolio Trust Board monitors trading activity in
restricted securities. If institutional trading in restricted securities were to
decline, the liquidity of the Portfolio could be adversely affected.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Portfolio may purchase
securities on a when-issued or delayed delivery basis. Delivery of and payment
for these securities may take place as late as a month or more after the date of
the purchase commitment. The value of these securities is subject to market
fluctuations during this period, and no income accrues to the Portfolio until
settlement takes place.
REPURCHASE AGREEMENTS. In a repurchase agreement, the Portfolio buys a security
at one price and simultaneously agrees to sell it back to the seller on a
specific date and at a higher price reflecting a market rate of interest
unrelated to the coupon rate or maturity of the underlying security. Delays or
losses could result if the other party to the agreement defaults or becomes
insolvent.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS. In a reverse repurchase
agreement, the Portfolio temporarily transfers possession of a portfolio
instrument to another party in return for cash. This could increase the risk of
fluctuation in the Fund's yield or in the market value of its interest in the
Portfolio. In a dollar roll, the Portfolio sells mortgage-backed or other
securities for delivery in the current month and simultaneously contracts to
purchase substantially similar securities on a specified future date. Reverse
repurchase agreements and dollar rolls are forms of borrowing and will be
counted towards the Portfolio's borrowing restrictions. See "Borrowing" on the
following pages and in the SAI. Wrapper Agreements would cover the cash proceeds
of such transactions but not the portfolio instruments transferred to another
party until possession of such instruments is returned to the Portfolio.
SHORT-TERM INVESTMENTS. The Portfolio's assets may be invested in high quality
short-term investments with remaining maturities of 397 days or less to maintain
the Liquidity Reserve, to meet anticipated redemptions and expenses for
day-to-day operating purposes and when, in Bankers Trust's opinion, it is
advisable to adopt a temporary defensive position because of unusual and adverse
conditions affecting the respective markets.
BORROWING. The Portfolio will not borrow money (including through reverse
repurchase agreements or dollar roll transactions) for any purpose in excess of
5% of its total assets, except that it may borrow for temporary or emergency
purposes up to 1/3 of its total assets. Under the 1940 Act, the Portfolio is
required to maintain continuous asset coverage of 300% with respect to such
borrowings and to sell (within three days) sufficient portfolio holdings to
restore
<PAGE>
such coverage if it should decline to less than 300% due to market fluctuations
or otherwise, even if such liquidation of the Portfolio's holdings may be
disadvantageous from an investment standpoint.
Leveraging by means of borrowing may exaggerate the effect of any increase or
decrease in the value of the Portfolio's securities and the Fund's NAV per
Share, and money borrowed by the Portfolio will be subject to interest and other
costs (which may include commitment fees and/or the cost of maintaining minimum
average balances) that may exceed the income received from the securities
purchased with the borrowed funds. It is not the intention of Bankers Trust to
use leverage as a normal practice in the investment of the Portfolio's assets.
HEDGING STRATEGIES. The Portfolio may use certain strategies designed to adjust
the overall risk of its investment portfolio. These "hedging" strategies involve
derivative contracts, including U.S. Treasury and Eurodollar futures contracts
and exchange-traded put and call options on such futures contracts. New
financial products and risk management techniques continue to be developed and
may be used if consistent with the Portfolio's investment objective and
policies. Among other purposes, these hedging strategies may be used to
effectively maintain a desired portfolio duration or to protect against market
risk should the Portfolio change its investments among different types of Fixed
Income Securities. In this respect, these hedging strategies are designed for
different purposes than the investments in Wrapper Agreements. The SAI contains
further information on these strategies.
The Portfolio might not use any hedging strategies, and there can be no
assurance that any strategy used will succeed. If the Adviser is incorrect in
its judgment on market values, interest rates or other economic factors in using
a hedging strategy, the Portfolio may have lower net income and a net loss on
the investment. Each of these strategies involves certain risks, which include:
o the fact that the skills needed to use hedging instruments are different from
those needed to select securities for the Portfolio;
o the possibility of imperfect correlation, or even no correlation, between the
price movements of hedging instruments and price movements of the securities or
currencies being hedged;
o possible constraints placed on the Portfolio's ability to purchase or sell
portfolio investments at advantageous times due to the need for the Portfolio to
maintain "cover" or to segregate securities; and
o the possibility that the Portfolio is unable to close out or liquidate its
hedged position.
<PAGE>
ASSET COVERAGE. To assure that the Portfolio's use of futures contracts and
related options, as well as when-issued and delayed-delivery securities, are not
used to achieve investment leverage, the Portfolio will cover such transactions,
as required under applicable interpretations of the SEC, either by owning the
underlying securities or by segregating liquid securities with the Portfolio's
custodian (Bankers Trust) in an amount at all times equal to or exceeding the
Portfolio's commitment with respect to these instruments or contracts. Assets
that are segregated for purposes of providing cover need not be physically
segregated in a separate account provided that the custodian notes on its books
that such assets are segregated. The Portfolio will also cover its use of
Wrapper Agreements to the extent required to avoid the creation of a "senior
security" (as defined in the 1940 Act) in connection with its use of such
agreements.
PERFORMANCE
The Fund's performance may be used from time to time in advertisements,
shareholders reports or other communications to shareholders or prospective
shareholders. Performance information may include investment results and/or
comparisons of its investment results to the IBC Averages, Lipper Averages, an
appropriate guaranteed interest contract ("GIC") average, or other various
unmanaged indices or results of other mutual funds or investment or saving
vehicles. The Portfolio's strategies, holdings and performance will be detailed
twice a year in the Fund's financial reports, which are sent to all Fund
shareholders. From time to time, the Shares' ranking may be quoted from various
sources, such as Lipper Analytical Services, Inc., Value Line, Inc. and
Morningstar, Inc.
Mutual fund performance is commonly measured as total return and/or yield. The
performance of a class of shares is affected by its expenses and those of the
Portfolio.
EXPLANATION OF TERMS
TOTAL RETURN is the change in value of an investment in the Shares over a given
period, assuming reinvestment of any dividends and capital gain distributions. A
CUMULATIVE total return reflects actual performance over a stated period of
time. An AVERAGE annual total return is a hypothetical rate of return that, if
achieved annually, would have produced the same cumulative total return if
performance had been constant over the entire period. Average annual total
return calculations smooth out variations in performance; they are not the same
as actual year-by-year results. Average annual total returns covering periods of
less than one year assume that performance will remain constant for the rest of
the year.
<PAGE>
YIELD refers to the income generated by an investment in the Shares over a given
period of time, expressed as an annual percentage rate. Yields are calculated
according to a standard that is required for all stock and bond funds. Because
this differs from other accounting methods, the quoted yield may not equal the
income actually paid to shareholders.
Unlike some bank deposits or other investments that pay a fixed yield for a
stated period of time, the total return of the Shares will vary depending upon
interest rates, the current market value of the Portfolio Securities and the
Wrapper Agreements and changes in the expenses of the Shares and the Portfolio.
In addition, during certain periods for which total return may be provided,
Bankers Trust may have voluntarily agreed to waive portions of its fees, or to
reimburse certain operating expenses of the Fund or the Portfolio, on a
month-to-month basis. Such waivers will have the effect of increasing the Fund's
net income (and therefore its yield and total return) during the period such
waivers are in effect.
TOTAL RETURNS AND YIELDS ARE BASED ON PAST RESULTS AND ARE NOT AN INDICATION OF
FUTURE PERFORMANCE.
MANAGEMENT OF THE TRUSTS
BOARDS OF TRUSTEES
The Trust and the Portfolio Trust (collectively the "Trusts") are each governed
by a Board of Trustees that is responsible for protecting the interests of
investors. A majority of the Trustees who are not "interested persons" (as
defined in the 1940 Act) of either Trust have adopted written procedures
reasonably appropriate to deal with potential conflicts of interest arising from
the fact that some of the same individuals may be Trustees of both Trusts, up to
and including creating separate boards of trustees. See "Management of the
Trusts" in the SAI for more information with respect to the Trustees and
officers of the Trusts.
INVESTMENT ADVISER
The Fund has not retained the services of an investment adviser because it seeks
to achieve its investment objective by investing all of its net investable
assets in the Portfolio. The Portfolio has retained the services of Bankers
Trust as its investment adviser pursuant to an Investment Advisory Agreement
between the Portfolio Trust and Bankers Trust dated April 28, 1993 (the
"Investment Advisory Agreement").
<PAGE>
BANKERS TRUST COMPANY AND ITS AFFILIATES
Bankers Trust Company, a New York banking corporation with principal offices at
130 Liberty Street (One Bankers Trust Plaza), New York, New York 10006, is a
wholly owned subsidiary of Bankers Trust New York Corporation. Bankers Trust
conducts a variety of general banking and trust activities and is a major
wholesale supplier of financial services to the international and domestic
institutional market.
As of September 30, 1998, Bankers Trust Corporation was the seventh largest bank
holding company in the United States with total assets of over $150 billion.
Bankers Trust is a worldwide financial services firm 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. Bankers Trust is
one of the nation's largest and most experienced investment managers, with over
$350 billion in assets under management globally. The scope of Bankers Trust's
investment management capability is unique due to its leadership positions in
both active and passive quantitative management and its presence in major equity
and fixed income markets around the world. Bankers Trust's officers have had
extensive experience in managing investment portfolios having objectives similar
to those of the Fund and the Portfolio. Bankers Trust has more than 50 years of
experience managing retirement assets for the nation's largest corporations and
institutions.
Bankers Trust, subject to the supervision and direction of the Portfolio Trust's
Board, manages the Portfolio in accordance with the Portfolio's investment
objective and stated investment policies, makes investment decisions for the
Portfolio, places orders to purchase and sell securities and other financial
instruments on behalf of the Portfolio and employs professional investment
managers and securities analysts who provide research services to the Portfolio.
Bankers Trust may utilize the expertise of any of its worldwide subsidiaries and
affiliates to assist it in its role as investment adviser. All orders for
investment transactions on behalf of the Portfolio are placed by Bankers Trust
with broker-dealers and other financial intermediaries that it selects,
including those affiliated with Bankers Trust. A Bankers Trust affiliate will be
used in connection with a purchase or sale of an investment for the Portfolio
only if Bankers Trust believes that the affiliate's charge for the transaction
does not exceed usual and customary levels. The Portfolio will not invest in
obligations, including Wrapper Agreements, for which Bankers Trust or any of its
affiliates is the ultimate obligor or accepting bank. The Portfolio may,
however, invest in the obligations of correspondents and customers of Bankers
Trust.
<PAGE>
The Investment Advisory Agreement provides for the Portfolio Trust to pay
Bankers Trust a fee, accrued daily and paid monthly, of 0.35% per year of the
average daily net assets of the Portfolio. Bankers Trust has indicated that it
will voluntarily waive all but 0.20% of this fee. 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 Trusts described in
this Prospectus and the SAI without violation of the Glass-Steagall Act or other
applicable banking laws or regulations. State laws on this issue may differ from
the interpretations of relevant federal law, and banks and financial
institutions may be required to register as dealers pursuant to state securities
law.
PORTFOLIO MANAGEMENT
Eric Kirsch (CFA), a Managing Director of Bankers Trust, has been responsible
for the day-to-day investment management of the Portfolio since its inception.
Mr. Kirsch heads the stable value investment group of Bankers Trust's Global
Investment Management business. In this capacity, he manages stable value
portfolios and coordinates fixed income portfolio management and trading
functions with regards to these portfolios' investments. He joined Bankers Trust
in 1980.
Louis R. D'Arienzo, a Vice President and Portfolio Manager of the structured
fixed income group at Bankers Trust, has managed the Fixed Income Securities of
the Portfolio since its inception. Mr. D'Arienzo has 17 years of trading and
investment experience in structured portfolios and quantitative analysis of
fixed income and derivative securities. He joined Bankers Trust in 1981.
John D. Axtell, a Principal and Stable Value Portfolio Manager at Bankers Trust,
has managed the Wrapper Agreements held by the Portfolio since its inception.
Mr. Axtell joined Bankers Trust in 1990.
Bankers Trust investment personnel may invest in securities for their own
account pursuant to a code of ethics that establishes procedures for personal
investing and restricts certain transactions.
<PAGE>
ADMINISTRATOR
Under an Administration and Services Agreement with the Trust, Bankers Trust
calculates the NAV per Share of the Fund and generally assists the Trust Board
in all aspects of the administration and operation of the Fund. This
Administration and Services Agreement provides for the Trust to pay Bankers
Trust a fee, accrued daily and paid monthly, of 0.25% per year of the average
daily net assets of the Shares.
Under an Administration and Services Agreement with the Portfolio Trust, Bankers
Trust calculates the NAV of the Portfolio and generally assists the Portfolio in
all aspects of the administration and operation of the Portfolio. This
Administration and Services Agreement provides for the Portfolio to pay Bankers
Trust a fee, accrued daily and paid monthly, of 0.05% per year of the
Portfolio's average daily net assets. Under this Administration and Services
Agreement, Bankers Trust may delegate one or more of its responsibilities to
others, including the Distributor or its affiliates, at Bankers Trust's expense.
In addition, subject to certain conditions, Bankers Trust may, out of its own
resources, make ongoing payments to brokerage firms, plan administrators and
fiduciaries, financial institutions (including banks) and others that facilitate
the administration and servicing of shareholder accounts.
DISTRIBUTOR
ICC, as Distributor, serves as the Trust's principal underwriter on a best
efforts basis. In addition, ICC and its affiliates provide administration and
distribution services for other registered investment companies. ICC is a
registered broker/dealer and is unaffiliated with Bankers Trust . Its principal
offices are at Two Portland Square, Portland, ME 04101.
CUSTODIAN AND TRANSFER AGENT
Bankers Trust acts as custodian for the assets of the Portfolio and serves as
the Trust's transfer agent (the "Transfer Agent") under the Administration and
Services Agreement with the Trust. It is not separately compensated for these
services and may, at its own expense, delegate certain services to other service
providers.
NET ASSET VALUE
The NAV per Share is calculated on each day on which the New York Stock
Exchange, Inc. (the "NYSE") is open (each such day being a "Valuation Day"). The
<PAGE>
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 if the NYSE closes early, at the time of the early
closing. The NAV per Share is computed by dividing the value of the Fund's
assets (I.E., the value of its investment in the Portfolio and other assets, if
any), less all liabilities, by the total number of its Shares outstanding. The
Portfolio's securities and other assets are valued primarily on the basis of
market quotations or, if quotations are not readily available, by a method that
the Portfolio Trust Board believes accurately reflects fair value.
Pursuant to procedures adopted by the Portfolio Trust Board, the fair value of a
Wrapper Agreement ("Wrapper Value") generally will be equal to the difference
between the Book Value and the market value (plus accrued interest on the
underlying securities) of the applicable Covered Assets. If the market value
(plus accrued interest on the underlying securities) of the Covered Assets is
greater than their Book Value, the Wrapper Value will be reflected as a
liability of the Portfolio in the amount of the difference, i.e., a negative
value, reflecting the potential liability of the Portfolio to the Wrapper
Provider. If the market value (plus accrued interest on the underlying
securities) of the Covered Assets is less than their Book Value, the Wrapper
Value will be reflected as an asset of the Portfolio in the amount of the
difference, i.e., a positive value, reflecting the potential liability of the
Wrapper Provider to the Portfolio. In performing its fair value determination,
the Portfolio Trust Board expects to consider the creditworthiness and ability
of a Wrapper Provider to pay amounts due under the Wrapper Agreement. If the
Portfolio Trust Board determines that a Wrapper Provider is unable to make such
payments, that Board may assign a fair value to the Wrapper Agreement that is
less than the difference between the Book Value and the market value (plus
accrued interest on the underlying securities) of the applicable Covered Assets
and the Portfolio might be unable to maintain NAV stability.
Under procedures adopted by the Trust Board, an NAV per Share later determined
to have been inaccurate for any reason will be recalculated. Purchases and
redemptions made at an NAV per Share determined to have been inaccurate will be
adjusted, although in certain circumstances, such as where the difference
between the original NAV per Share and the recalculated NAV per
<PAGE>
Share divided by the latter is 0.005 (1/2 of 1%) or less or shareholder
transactions are otherwise insubstantially affected, action is not required.
SHAREHOLDER AND ACCOUNT POLICIES
ACCOUNT INFORMATION
The Fund is offered solely to Plans that limit their participants' ability to
direct a withdrawal from the Fund to the following circumstances:
o upon the Plan participant's death, retirement, disability or
termination;
o to fund Plan participant loans and other "in service" withdrawals made
pursuant to the terms of the Plan; and
o for transfers to other Plan investment options that are not "competing funds."
"Competing funds" are any fixed income investment options with a targeted
average duration of three years or less, or any investment option that seeks to
maintain a stable value per unit or share, including money market funds.
Transfers between the Fund and a non-competing fund will be required to remain
in the non-competing fund for a period of at least three months before transfer
to a competing fund.
The Wrapper Agreements require that each Plan maintain the foregoing
restrictions on withdrawals. Consequently, to protect the interests of
Shareholders, the Fund has the right to unilaterally redeem some or all Fund
Shares of a Plan which does not maintain and enforce these restrictions. These
involuntary redemptions will be subject to the Fund's 2.0% redemption fee.
Fund Shares will be owned by the Plans, either directly or beneficially through
vehicles such as bank collective funds or insurance company separate accounts
consisting solely of such Plans (collectively, "Plan Pools"), which will in turn
offer the Fund as an investment option to their participants. Investments in the
Fund may by themselves represent an investment option for a Plan or may be
combined with other investments as part of a pooled investment option for the
Plan. In the latter case, the Fund will require Plans to provide information
regarding the withdrawal order and other characteristics of any pooled
investment option in which the Shares are included prior to a Plan's initial
investment in the Fund. Thereafter, the Fund will require the Plan to provide
information regarding any changes to the withdrawal order and other
characteristics of the pooled investment option before such changes are
implemented. The Fund in its sole discretion may decline to sell Shares to Plans
if the governing withdrawal order or other characteristics of any pooled
<PAGE>
investment option in which the Shares are included is determined at any time to
be disadvantageous to the Fund.
Plan participants should contact their Plan administrator or the organization
that provides recordkeeping services if they have questions concerning their
account. Plan administrators and fiduciaries should call 1-800-677-7596 for
information regarding a Plan's account with the Fund.
TRANSACTIONS IN FUND SHARES
Plan participant-directed purchases, exchanges and redemptions of Shares are
handled in accordance with each Plan's specific provisions. Plans may have
different provisions with respect to the timing and method of purchases,
exchanges and redemptions by Plan participants. Plan participants should contact
their Plan administrator for details concerning how they may direct transactions
in Shares. It is the responsibility of the Plan administrator or other Plan
service provider to forward instructions for these transactions to Bankers
Trust.
Purchase orders for Shares that are received by Bankers Trust, as the Transfer
Agent, or other authorized agent of the Fund, prior to the Valuation Time on any
Valuation Day will be effective at that Valuation Time. The Trust and the
Distributor reserve the right to reject any purchase order. Certificates for
Shares will not be issued. Redemption requests will be processed at the NAV next
determined after a request for redemption is received in good order by Bankers
Trust. The Fund reserves the right to require written verification of whether a
redemption request is directed by Plan participants in accordance with Plan
provisions or is otherwise made by a withdrawing Plan and to establish the
authenticity of this information before processing a redemption request.
Normally, the Fund will make payment for all Shares redeemed under this
procedure within one business day after a request is received. In no event will
payment be made more than seven days after receipt of a redemption request in
good order. The Fund may suspend the right of redemption or postpone the date at
times when both the NYSE and the Fund's custodian bank (Bankers Trust) are
closed, or under any emergency circumstances as determined by the SEC.
The Fund reserves the right to honor any request for redemption by making
payment in whole or in part in securities and in Wrapper Agreements, selected
solely in the discretion of Bankers Trust. To the extent that payment is made in
securities, a shareholder may incur brokerage expenses in converting these
securities into cash. To the extent that a redemption in kind includes Wrapper
Agreements, the Fund will obtain from the Portfolio and assign to the redeeming
Plan or Plan Pool one or more Wrapper Agreements issued by the Wrapper Providers
covering the Portfolio Securities distributed in kind. The terms and
<PAGE>
conditions of Wrapper Agreements provided to a redeeming Plan shareholder will
be the same or substantially similar to the terms and conditions of the Wrapper
Agreements held by the Portfolio, including the requirement that the Plan
maintain the restrictions on participant withdrawals noted above. The redeeming
Plan or Plan Pool must execute the assigned Wrapper Agreement(s) in order to
obtain the benefits provided thereunder. Wrapper Agreements are not liquid
securities and may impose restrictions on termination or withdrawal, including
notice periods of one year or longer for non-participant directed withdrawals.
The maintenance of Wrapper Agreements distributed in kind will also require that
a Plan or Plan Pool pay fees to the Wrapper Provider directly, rather than
through the Fund, and that the securities covered by the Wrapper Agreement
continue to have a specified duration or maturity, consist of specified types of
securities or be of a specified investment quality. Accordingly, although a
redeeming Plan or Plan Pool may freely buy and sell securities covered by a
Wrapper Agreement, its management of the securities must be consistent with
Wrapper Agreement requirements in order for it to obtain the benefits of the
Wrapper Agreement. Moreover, a Plan or Plan Pool may be required to obtain at
its own expense the services of a qualified investment manager to execute the
Wrapper Agreement and to manage the securities distributed in kind in conformity
with the Wrapper Agreement provisions and may incur additional administrative
expenses in managing this portfolio. Please see the SAI for additional
information concerning Wrapper Agreements and redemptions in kind.
The Fund has elected, however, to redeem Shares solely in cash up to the lesser
of $500,000 or 1% of the NAV of the Fund during any 90-day period for any one
shareholder. The Fund anticipates that it will exercise the right to redeem in
kind in the case of redemptions of Shares that are not directed by Plan
participants and that are made on less than twelve months' prior written notice
to Bankers Trust. In such case, or in the case where 5% or more of Plan assets
invested in the Fund are redeemed on any business day, a redemption request will
not be considered received in good order unless the Plan has provided to Bankers
Trust: (i) its current name; (ii) a listing of its trustee(s); (iii) copies of
Plan documents or summaries thereof describing the investment options available
to and the restrictions imposed upon Plan participants; (iv) information
indicating the allocation of Plan assets among available investment options; (v)
for the immediately preceding three year period, a monthly summary of all cash
flow activity for the Plan's investment option in which the Shares are included,
detailed by contribution and benefit payment amounts and amounts transferred to
and from other investment options; and (vi) in the case of Plans subject to
ERISA, identification of a "Qualified Professional Asset Manager" within the
meaning of Department of Labor Prohibited Transaction Class Exemption 84-14
(March 8, 1984). Redemptions of Shares that are not directed by Plan
participants and that are made on less than twelve months' prior written notice
will also be
<PAGE>
subject to a redemption fee, payable to the Fund, of 2.0% of the proceeds of the
redemption, whether in kind or in cash. However, this redemption fee shall not
apply to redemptions, the proceeds of which are immediately reinvested in
another class of shares of the Fund or in interests in another investment
company or entity that invests exclusively in the Portfolio. The Fund reserves
the right to withhold from redemption proceeds the 2.0% redemption fee if 5% or
more of Plan assets invested in the Fund are redeemed on any business day
pending a determination of whether the redemption fee is applicable. The Fund
may incur costs in obtaining new Wrapper Agreements from Wrapper Providers to be
distributed in kind. These costs will be payable from, and are not expected to
exceed, the 2.0% redemption fee. The redemption price may be more or less than
the shareholder's cost, depending upon the market value of the Fund's assets
(its interest in the Portfolio) at the time.
The offering price is the NAV per Share. Shares may be purchased only in those
states where they may be lawfully sold.
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
The Fund intends to distribute all of its net investment income and net capital
gains, if any, to its shareholders each year. Dividends from net investment
income are declared daily and are paid monthly, and any net capital gains are
distributed annually. An additional annual distribution ("Additional
Distribution") may be paid to satisfy the tax requirements (outlined below) that
the Fund distribute each year substantially all of its investment company
taxable income (see "Tax Considerations").
Dividends and other distributions paid on each class of the Fund's shares are
calculated at the same time and in the same manner. Dividends on the shares may
be expected to differ based upon each class's respective expenses. Dividends and
other distributions are automatically reinvested in additional Shares unless the
Plan participant directs otherwise.
The Fund may declare and pay dividends in amounts which are not equal to the
amount of the net investment income it actually earns. Consequently, in any year
the amount actually distributed may differ from the income earned. If, for any
year, those distributions exceed the income earned, the excess may be considered
a return of capital. On the other hand, if the income earned exceeds the amount
of the dividends distributed, the Fund may make an Additional Distribution of
that excess. To enable the Fund to maintain a stable NAV per Share in the event
of an Additional Distribution, the Trust Board may declare, effective on the
ex-distribution date of an Additional Distribution, a reverse split of the
Shares in an amount that will cause the total number of Shares held by each
shareholder,
<PAGE>
including Shares acquired on reinvestment of that distribution, to remain the
same as before that distribution was paid.
For example, if the Fund declares an Additional Distribution of 10(cents) per
Share at a time when the NAV per Share is $10.00, a shareholder holding one
Share would receive 0.01 additional Shares on reinvestment of that distribution.
If there were no reverse split, the per Share NAV of the 1.01 Shares held by the
shareholder would be approximately $9.90, and the aggregate value thereof would
be $10.00. If a 1.01-for-1 reverse Share split were declared, however, the
shareholder's holdings would be consolidated back into one Share having an NAV
of $10.00. Thus, a reverse Share split will not affect the value of the total
holdings of a shareholder.
TAX CONSIDERATIONS
The Fund intends to qualify to be treated as a regulated investment company
under the Internal Revenue Code of 1986, as amended.
As a regulated investment company, the Fund will not be subject to U.S. federal
income tax on its investment company taxable income (generally consisting of net
investment income and the excess of net short-term capital gain over net
long-term capital loss, if any) and net capital gain (the excess of net
long-term capital gain over net short-term capital loss), if any, that it
distributes to its shareholders. The Fund intends to distribute to its
shareholders all of its investment company taxable income and net capital gain
at least annually, if necessary through Additional Distributions, and therefore
does not anticipate incurring any federal income tax liability.
For Plan participants utilizing the Fund as an investment option under their
Plan, dividend and capital gain distributions from the Fund generally will not
be subject to current taxation, but will accumulate on a tax-deferred basis. In
general, Plans are governed by a complex set of tax rules. See your Plan
administrator, your plan's Summary Plan Description, and/or a professional tax
adviser regarding the tax consequences of your participation in your Plan and of
any Plan contributions or withdrawals.
ADDITIONAL INFORMATION ABOUT THE TRUSTS
The Fund is a mutual fund: an investment that pools shareholders' money and
invests it toward a specified goal. The Fund is a separate series of the Trust,
a Massachusetts business trust organized pursuant to a Declaration of Trust
dated February 28, 1992. The Portfolio is a separate subtrust of the Portfolio
Trust, a New York master trust fund organized pursuant to a Declaration of Trust
dated March 27, 1993.
<PAGE>
Each Trust reserves the right to add additional series/subtrusts in the future.
There are currently no other funds investing in the Portfolio. Other funds
investing in the Portfolio may have sales charges and/or different expenses than
the Fund, which may affect performance. The Trust also reserves the right to
issue additional classes of shares of the Fund. Each class represents an
identical interest in the Fund's investment portfolio. As a result, the classes
have the same rights, privileges and preferences, except with respect to: (1)
the designation of each class; (2) the expenses allocated exclusively to each
class; and (3) voting rights on matters exclusively affecting a single class.
The Trust Board does not anticipate that there will be any conflicts among the
interests of the holders of the different classes and will take appropriate
action if any such conflict arises. For more information about the different
classes of shares of the Fund, please call 1-800-677-7596.
Each Trust may hold special meetings and mail proxy materials. These meetings
may be called to elect or remove Trustees, change fundamental policies, approve
the Portfolio's investment advisory agreement, or for other purposes.
Shareholders not attending a Trust meeting are encouraged to vote by proxy. The
Transfer Agent will mail proxy materials in advance, including a voting card and
information about the proposals to be voted on.
When matters are submitted for shareholder vote, shareholders of the Fund will
have one vote for each full Share held and proportionate, fractional votes for
fractional Shares held. A separate vote of the Fund is required on any matter
affecting only the Fund on which shareholders are entitled to vote; shareholders
of the Fund are not entitled to vote on Trust matters that do not affect the
Fund and do not require a separate vote of the Fund. All series of the Trust
will vote together on certain matters, such as electing Trustees or approving
independent auditors. Under certain circumstances, the shareholders of one of
series of the Trust could control the outcome of these votes. There normally
will be no meetings of shareholders for the purpose of electing Trustees unless
and until such time as less than a majority of Trustees holding office has been
elected by shareholders, at which time the Trustees then in office will call a
shareholders' meeting for the election of Trustees. Any Trustee may be removed
from office upon the vote of shareholders holding at least two-thirds of the
Trust's outstanding shares at a meeting called for that purpose. The Trustees
are required to call such a meeting upon the written request of shareholders
holding at least 10% of the Trust's outstanding shares. The Trust will also
assist shareholders in communicating with one another as provided for in the
1940 Act.
Each subtrust of the Portfolio Trust, including the Portfolio, will vote
separately on any matter involving that subtrust. Holders of interests in all
the subtrusts of the Portfolio Trust, however, will vote together to elect
Trustees of the Portfolio
<PAGE>
Trust and for certain other matters. The subtrusts of the Portfolio Trust will
vote together or separately on matters in the same manner, and in the same
circumstances, as do the series of the Trust. As with the Trust, the investors
in one or more subtrusts of the Portfolio Trust could control the outcome of
these votes. No subtrust of the Portfolio Trust has any preference over any
other subtrust.
The Trust is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a business trust may,
under certain circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder's incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the Trust itself was unable to meet its
obligations.
The Portfolio Trust was organized as a trust under the laws of the State of New
York. The Portfolio Trust's Declaration of Trust provides that the entities
investing in the Portfolio (e.g., investment companies such as the Fund and
common and commingled trust funds) will each be liable for all obligations of
the Portfolio. However, the risk of the Fund's incurring financial loss on
account of such liability is limited to circumstances in which both inadequate
insurance existed and the Portfolio itself was unable to meet its obligations.
Accordingly, the Trustees of the Trust believe that neither the Fund nor its
shareholders will be adversely affected by reason of the Fund's investing in the
Portfolio.
As of October 30, 1998, Avon Employees Savings & Stock Ownership Plan, Brooklyn,
New York 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>
BT PYRAMID MUTUAL FUNDS BT PRESERVATIONPLUS FUND
INVESTMENT CLASS
INVESTMENT ADVISER OF THE PORTFOLIO AND ADMINISTRATOR
BANKERS TRUST COMPANY
130 Liberty Street
(One Bankers Trust Plaza)
New York, New York 10006
DISTRIBUTOR
ICC DISTRIBUTORS, INC.
Two Portland Square,
Portland, ME 04101
CUSTODIAN AND TRANSFER AGENT
BANKERS TRUST COMPANY
130 Liberty Street
(One Bankers Trust Plaza)
New York, New York 10006
INDEPENDENT AUDITORS
ERNST & YOUNG LLP
Two Commerce Square,
2001 Market Street,
Philadelphia, Pennsylvania 19103
COUNSEL WILLKIE FARR & GALLAGHER 787 Seventh Avenue, New York, NY 10019
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus, the SAI or the
Fund's official sales literature in connection with the offering of the Shares
and, if given or made, such other information or representations must not be
relied on as having been authorized by the Fund. This Prospectus does not
constitute an offer in any state in which, or to any person to whom, such offer
may not lawfully be made.
Cusip #055847842
STA495300(11/98)
(BULLET) BT PYRAMID MUTUAL FUNDS (BULLET)
BT PRESERVATIONPLUS FUND
SERVICE CLASS
Seeks a high level of current income while seeking to maintain a stable value
per share.
PROSPECTUS
NOVEMBER 30, 1998
BT Pyramid Mutual Funds (the "Trust") is an open-end management investment
company (mutual fund). The BT PreservationPlus Fund (the "Fund") is a separate
series of the Trust and offers separate classes of shares. The shares offered by
this prospectus are the Service Class of shares (the "Shares"). The Fund seeks a
high level of current income while seeking to maintain a stable value per share.
The Fund is offered solely to participant-directed employee benefit plans
meeting specified criteria.
UNLIKE OTHER MUTUAL FUNDS, THE FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY
INVESTING ALL OF ITS NET INVESTABLE ASSETS IN BT PRESERVATIONPLUS PORTFOLIO (THE
"PORTFOLIO"), A SEPARATE SUBTRUST OF BT INVESTMENT PORTFOLIOS, A NEW YORK MASTER
TRUST FUND (THE "PORTFOLIO TRUST"), WITH AN IDENTICAL INVESTMENT OBJECTIVE. SEE
"SPECIAL INFORMATION CONCERNING THE MASTER-FEEDER FUND STRUCTURE." THE FUND IS
NOT A MONEY MARKET FUND, AND THERE CAN BE NO ASSURANCE THAT IT WILL BE ABLE TO
MAINTAIN A STABLE VALUE PER SHARE OR OTHERWISE ACHIEVE ITS OBJECTIVE.
Please read this Prospectus before investing and keep it on file for future
reference. It contains important information concerning the Fund and the
Portfolio, including how the Portfolio invests and the services available to the
Fund's shareholders. Bankers Trust Company ("Bankers Trust") is the investment
adviser ("Adviser") of the Portfolio.
To learn more about the Fund and the Portfolio, investors can obtain a copy of
the Fund's Statement of Additional Information ("SAI"), dated November 30, 1998
which has been filed with the Securities and Exchange Commission (the "SEC") and
is incorporated herein by this reference. You may
<PAGE>
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 1-800-677-7596. 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).
SHARES OF THE FUND ARE NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, BANKERS TRUST COMPANY, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
AGENCY. AN INVESTMENT IN THE FUND IS SUBJECT TO RISK THAT MAY CAUSE THE VALUE OF
THE INVESTMENT TO FLUCTUATE, AND WHEN THE INVESTMENT IS REDEEMED, THE VALUE MAY
BE HIGHER OR LOWER THAN THE AMOUNT ORIGINALLY INVESTED BY THE INVESTOR.
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.
ICC DISTRIBUTORS, INC.
(Bullet) Two Portland Square (Bullet) Portland, Maine 04101 (Bullet)
<PAGE>
TABLE OF CONTENTS
The Fund 3
Who May Invest 3
Investment Principles and Risks 3
Summary of Fund Expenses 4
The Fund in Detail 6
Risk Factors: Matching the Fund to Your Investment Needs 7
Special Information Concerning the Master-Feeder Fund Structure 10
Securities and Investment Practices of the Portfolio 11
Performance 14
Management of the Trusts 14
Net Asset Value 16
Shareholder and Account Policies 17
Dividends and Capital Gain Distributions 19
Additional Information about the Trusts 20
<PAGE>
THE FUND
The Fund's investment objective is a high level of current income while seeking
to maintain a stable value per Share. The Fund seeks to achieve its investment
objective by investing all of its net investable assets in the Portfolio. The
Portfolio will seek to achieve this objective by investing in a diversified
portfolio of fixed income securities, money market instruments, futures, options
and other instruments ("Portfolio Securities") and by entering into contracts
("Wrapper Agreements") with financial institutions, such as insurance companies
and banks, that are intended to stabilize the value per Share of the Fund. See
"Risk Factors: Matching the Fund to Your Investment Needs."
There can be no assurance that the Fund will achieve its objective.
WHO MAY INVEST
Shares of the Fund are offered solely to participant-directed employee benefit
plans meeting specified criteria (each a "Plan" and together "Plans"). Shares
are offered to Plans either directly or through vehicles such as bank collective
funds or insurance company separate accounts consisting solely of such Plans.
The Fund is designed for investors seeking preservation and stability of
principal and a level of current income higher than money market mutual funds
over most time periods.
The Fund is not in itself a balanced investment plan. Plan participants should
consider their investment objective and tolerance for risk when making an
investment decision. When Shares are redeemed, they may be worth more or less
than what they originally cost, although the nature of the Portfolio's
investments -- particularly the Wrapper Agreements -- are intended by the Fund
to stabilize the value per Share. A Plan offering investments in the Fund must
impose certain restrictions on the ability of a Plan participant to exchange
Shares for similar investment options. See "Account Information."
INVESTMENT PRINCIPLES AND RISKS
The value of most of the Portfolio Securities will fluctuate based upon changes
in domestic or foreign interest rates, the credit quality of the issuer, market
conditions, and other economic and political news. In general, the prices of
Portfolio Securities will rise when interest rates fall, and fall when interest
rates rise. The Wrapper Agreements are intended to stabilize the value per Share
by offsetting fluctuations in the value of the Portfolio Securities under
certain conditions. Under most circumstances, the combination of Portfolio
Securities and Wrapper Agreements held by the Portfolio is expected to provide
Fund shareholders with a constant net asset value ("NAV") per Share and a
current
<PAGE>
rate of return that is higher than most money market mutual funds over most time
periods. However, there can be no guarantee that the Portfolio will maintain a
constant NAV, and consequently that the Fund will be able to maintain a constant
NAV per Share. There is also no guarantee that any Fund shareholder or Plan
participant will realize the same investment return as might be realized by a
direct investment in the Portfolio Securities without the Wrapper Agreements or
that the Fund's rate of return will be higher than that of most money market
mutual funds.
The Portfolio incurs costs in connection with its investment in Wrapper
Agreements which will reduce the Fund's investment return. The Wrapper
Agreements may not insulate the Portfolio from loss if an issuer of Portfolio
Securities defaults on payments of interest or principal. Additionally, an
issuer of a Wrapper Agreement could default on its obligations under the
agreement or the Portfolio might be unable to obtain Wrapper Agreements covering
all of its assets. Either type of default or the inability to obtain Wrapper
Agreements might result in a decline in the value of the Shares. Moreover, in
valuing a Wrapper Agreement, the Board of Trustees of the Portfolio Trust may
determine that such agreement should not be carried by the Portfolio at a value
sufficient to maintain the Portfolio's NAV per Share.
Bankers Trust may use various investment techniques to hedge the Portfolio's
risks, but there is no guarantee that these strategies will work as intended.
See "Risk Factors: Matching the Fund to Your Investment Needs" for more
information.
SUMMARY OF FUND EXPENSES
Annual operating expenses are paid out of the assets of the Portfolio and the
Fund. The Portfolio pays an investment advisory fee and an administrative
services fee to Bankers Trust. The Fund incurs additional administrative
expenses such as maintaining shareholder records and furnishing shareholder
statements. The Fund must also provide semi-annual financial reports.
The following tables are intended to assist investors in understanding the
expenses associated with investing in the Fund. The table provides (i) a summary
of expenses related to purchases and redemptions (sales) of Shares and the
anticipated annual operating expenses of the Fund and the Portfolio, in the
aggregate, as a percentage of average daily net assets and (ii) an example
illustrating the dollar cost of such expenses on a $1,000 investment in the
Fund.
<PAGE>
THE TRUSTEES OF THE TRUST BELIEVE THAT THE AGGREGATE EXPENSES OF THE FUND
(INCLUDING ITS PROPORTIONATE SHARE OF THE PORTFOLIO'S EXPENSES) WILL BE LESS
THAN OR APPROXIMATELY EQUAL TO THE EXPENSES THAT THE FUND WOULD INCUR IF THE
TRUST RETAINED THE SERVICES OF AN INVESTMENT ADVISER AND THE ASSETS OF THE FUND
WERE INVESTED DIRECTLY IN PORTFOLIO SECURITIES AND WRAPPER AGREEMENTS.
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge on Purchases None
Maximum Sales Charge on Reinvested Dividends None
Maximum Redemption Fee 2.0%
Shareholder transaction expenses are charges paid when investors buy, redeem or
exchange Shares. Under normal circumstances, redemptions of Shares that are
directed by Plan participants are not subject to a redemption fee. Redemptions
of Shares that are not directed by Plan participants and that are made on less
than twelve months' prior written notice to the Fund are subject to a redemption
fee payable to the Fund of 2% of the proceeds of the redemption. See
"Transactions in Fund Shares."
ANNUAL OPERATING EXPENSES
(as a percentage of the Fund's projected average daily net assets)
Investment advisory fee (after reimbursement or waiver)* 0.20%
12b-1 fee None
Other expenses (after reimbursement or waiver)** 0.60%
Total operating expenses (after reimbursement or waiver) 0.80%
* The Fund does not directly pay an investment advisory fee; the amount shown
reflects the Fund's proportionate share of the Portfolio's investment advisory
fee.
** "Other expenses" include premiums paid for Wrapper Agreements and certain
additional services provided to the Fund and the Portfolio by Bankers Trust,
including a shareholder servicing fee of 0.25%. Wrapper Agreements are contracts
entered into by the Portfolio that are intended to stabilize the value per Share
of the Fund (see "Investment Principles and Risks").
<PAGE>
EXAMPLE
An investor would pay the following expenses on a $1,000 investment assuming (1)
5% annual return and (2) redemption at the end of each time period. No
redemption fee has been included.
One Year Three Years Five Years Ten Years
$8 $26 $44 $99
The expense table and the example above show the estimated costs and expenses
that an investor will bear directly or indirectly as a shareholder of the Fund.
Bankers Trust has voluntarily agreed to waive a portion of its investment
advisory fee payable by the Portfolio. Without such waiver, the Portfolio's
investment advisory fee would be 0.35% of its average daily net assets. Bankers
Trust has also voluntarily agreed to waive a portion of its administration fees
and reimburse certain expenses (included in "Other Expenses") payable by the
Portfolio. Without such waiver or reimbursements, the Portfolio's "Other
Expenses" would have been 0.88%.. Bankers Trust may terminate these voluntary
waivers and reimbursements at any time in its sole discretion without notice to
shareholders. In the absence of these waivers, "Total Operating Expenses" of the
Shares would have been 1.23%. THE EXAMPLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES, AND ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN. Moreover, while the example assumes a 5% annual return,
actual performance will vary and may result in a return greater or less than 5%.
Service Class Shares are subject to shareholder servicing fees in the maximum
amount of 0.25% of the average daily net assets of the Shares. The shareholder
services provided in exchange for these fees may include establishing and
maintaining shareholder and Plan participant accounts, processing purchase and
redemption transactions, arranging for bank wires, performing shareholder
sub-accounting, answering investor/shareholder's inquiries regarding the Fund
and/or its classes, providing periodic statements showing the
investor/shareholder's account balance and those of Plan participants,
transmitting proxy statements, periodic reports, updated prospectuses and other
communications to shareholders and, with respect to
<PAGE>
meetings of shareholders, collecting, tabulating and forwarding to the Trust
executed proxies and obtaining such other information and performing such other
services as may reasonably be required.
Shares of the Fund are sold by ICC Distributors, Inc. ("ICC," or the
"Distributor"). For more information about the Fund's and the Portfolio's
expenses see "Management of the Trusts" and "Net Asset Value" herein. The Fund
and Bankers Trust have authorized one or more brokers to accept on its behalf
purchase and redemption orders. Such brokers are authorized to designate other
intermediaries to accept purchase and redemption orders on the Fund's behalf.
The Fund 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.
As of the date of this prospectus, the Fund has issued four classes of shares,
and may issue additional classes in the future. The Fund offers each class of
shares by a separate prospectus. Because the expenses vary between classes,
performance will vary with respect to each class. Additional information
concerning each class of shares is available from Bankers Trust, as
Administrator, at 1-800-677-7596.
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 period indicated and has been audited by Ernst & Young LLP, the Fund's
independent auditors, whose report thereon appears in the Fund's Annual Report
which is incorporated by reference.
Service Class Shares
For the period
September 23, 1998* through
September 30, 1998
Per Share Operating Performance:
Net Asset Value, Beginning of Period........ $10.00
------
Income from Investment Operations
Net Investment Income..................... 0.01
----
Distributions to Shareholders
Net Investment Income..................... (0.01)
-----
Net Asset Value, End of Period ............. $10.00
------
Total Investment Return..................... 5.42%**
Supplemental Data and Ratios:
Net Assets, End of Period (000s omitted).. $404
Ratios to Average Net Assets:***
Net Investment Income................... 5.42%**
Net Expenses, Including Expenses
of the PreservationPlus Portfolio..... 0.80%**
Decrease Reflected in Above
Expense Ratio Due to Absorption of
Expenses by Bankers Trust............. 0.43%**
- -----------------
* Commencement of operations
** Annualized
*** Includes Fund share of Portfolio expenses
THE FUND IN DETAIL
INVESTMENT OBJECTIVE AND POLICIES
The Fund seeks to achieve its investment objective by investing all of its net
investable assets in the Portfolio, which has the same investment objective as
the Fund. Since the investment characteristics of the Fund will correspond
directly to those of the Portfolio, the following is a discussion of the various
investments of and techniques employed by the Portfolio. Additional information
about the investment policies of the Portfolio appears in "Risk Factors:
Matching the Fund to Your Investment Needs" herein and in the SAI. There can be
no assurance that the Fund's and the Portfolio's investment objective will be
achieved. The 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 the Master-Feeder Fund Structure" herein.
<PAGE>
The Portfolio's investment objective is a high level of current income while
seeking to maintain a stable value per Share. The Portfolio expects to invest at
least 65% of its total assets in fixed income securities ("Fixed Income
Securities") of varying maturities rated, at the time of purchase, in one of the
top three long-term rating categories by Standard & Poor's ("S&P"), Moody's
Investors Service, Inc. ("Moody's"), or Duff & Phelps Credit Rating Co., or
comparably rated by another nationally recognized statistical rating
organization ("NRSRO"), or, if not rated by a NRSRO, of comparable quality as
determined by Bankers Trust in its sole discretion.
In addition, the Portfolio will enter into Wrapper Agreements with insurance
companies, banks or other financial institutions ("Wrapper Providers") that are
rated, at the time of purchase, in one of the top two long-term rating
categories by Moody's or S&P. There is no active trading market for Wrapper
Agreements, and none is expected to develop; therefore, they will be considered
illiquid. At the time of purchase, the value of all of the Wrapper Agreements
and any other illiquid securities will not exceed 15% of the Portfolio's net
assets.
The Fixed Income Securities include fixed income securities issued or guaranteed
by the U.S. government, or any agency or instrumentality thereof; publicly or
privately issued U.S. dollar-denominated debt of domestic or foreign entities,
including corporate, sovereign or supranational entities; publicly issued U.S.
dollar denominated asset-backed securities issued by domestic or foreign
entities; mortgage pass-through securities issued by the Government National
Mortgage Association ("GNMA"), the Federal Home Loan Mortgage Corporation
("FHLMC") or the Federal National Mortgage Association ("FNMA"); mortgage
pass-through securities issued by non-government entities such as banks,
mortgage lenders, or other financial institutions, including private label
mortgage pass-through securities and whole loans; collateralized mortgage
obligations ("CMOs") and real estate mortgage investment conduits ("REMICs"),
which are mortgage-backed debt instruments that make payments of principal and
interest at a variety of intervals and are collateralized by any of the
aforementioned mortgage pass-through securities or whole loans; and obligations
issued or guaranteed, or backed by securities issued or guaranteed by, the U.S.
government, or any of its agencies or instrumentalities, including Certificates
of Accrual Treasury Securities ("CATS"), Treasury Income Growth Receipts
("TIGRs"), and Treasury Receipts ("TRs") and zero coupon securities (securities
consisting solely of the principal or interest component of a U.S. Treasury
bond).
The Portfolio Securities purchased by the Portfolio also include short-term
investments rated, at the time of purchase, in one of the top two short-term
rating categories by an NRSRO or, if unrated, of comparable quality in the
opinion of the Adviser, including commercial paper and time deposits,
<PAGE>
certificates of deposit, bankers' acceptances and other instruments of foreign
and domestic banks and thrift institutions, and shares of money market mutual
funds. The Portfolio may invest up to 35% of its total assets in such short-term
investments for purposes of liquidity and up to 100% of its total assets in such
instruments for temporary defensive purposes. The Portfolio may also invest in
and utilize the following investments and investment techniques and practices:
Rule 144A securities (as defined in "Securities and Investment Practices of the
Portfolio"), when-issued and delayed delivery securities, repurchase agreements,
reverse repurchase agreements and dollar rolls, and options and futures
contracts. See "Risk Factors: Matching the Fund to Your Investment Needs" in
this Prospectus and in the SAI for more information.
In selecting securities for the Portfolio, the Adviser attempts to maintain an
average portfolio duration of the Portfolio Securities within a range of 2.5 to
4.5 years. Duration is a measure of the expected life of a Fixed Income Security
on a present value basis which incorporates the security's yield, coupon
interest payments, final maturity and call features into a single measure.
RISK FACTORS: MATCHING THE FUND TO YOUR INVESTMENT NEEDS
The following pages contain more detailed information about types of instruments
in which the Portfolio may invest and strategies the Adviser may employ in
pursuit of the Portfolio's investment objective. A summary of the risks and
restrictions associated with these investments and investment practices is
included as well.
The Adviser may not buy all of these instruments or use all of these techniques
to the full extent permitted unless it believes that doing so will help the
Portfolio achieve its objective. Current holdings and investment strategies will
be described in the financial reports of the Fund and the Portfolio, which will
be sent to Fund shareholders twice a year.
RISKS OF INVESTING IN FIXED INCOME SECURITIES. All fixed income investments have
exposure to three types of risks. Credit risk is the possibility that the issuer
of a Fixed Income Security will fail to make timely payments of either interest
or principal to the Portfolio. Interest rate risk is the potential for
fluctuations in the prices of Fixed Income Securities due to changing interest
rates. Income risk is the potential for decline in the Portfolio's income due to
the investment or reinvestment of assets in Fixed Income Securities when market
interest rates are falling.
Although there is no assurance that it will achieve its objective, the Portfolio
attempts to enhance yield while minimizing these risks. If an issuer of a Fixed
Income Security or a Wrapper Provider becomes financially impaired, it may
<PAGE>
default on its obligations and the Portfolio's interest income may be reduced or
the Portfolio may incur a loss of principal. This is an example of credit risk.
In order to minimize credit risk, the Portfolio's assets are allocated among a
diversified group of issuers. Credit analysis is applied to every security and
Wrapper Provider selected for the Portfolio. Once purchased, a security and, in
the case of a Wrapper Agreement, the Wrapper Provider is monitored regularly by
Bankers Trust for maintenance of adequate credit characteristics. In the event
that the rating of a security or Wrapper Provider is downgraded by one or more
NRSRO, the Portfolio may elect to retain the security or applicable Wrapper
Agreement. However, some Wrapper Agreements may FI require that Fixed Income
Securities that fall below investment grade be liquidated within a set time
period, typically within one year or less. The Portfolio may elect not to cover
with Wrapper Agreements any Fixed Income Securities with a remaining maturity of
60 days or less and any cash or short term investments.
When interest rates rise, Fixed Income Security prices generally decline. When
interest rates fall, Fixed Income Security prices generally increase. Generally,
the longer the maturity of the Fixed Income Security, the higher its yield,
although longer-term Fixed Income Securities tend to offer less price stability
in response to changes in interest rates than do shorter-term investments.
Therefore, portfolios with shorter average maturities tend to have less risk and
lower returns than portfolios with longer average maturities. This is an example
of interest rate risk. In order to help maintain an average portfolio duration
of 2.5 to 4.5 years, the Portfolio will invest primarily in Fixed Income
Securities of short- to intermediate-term maturities. This will help to minimize
interest rate risk. In addition, unlike most traditional fixed income
portfolios, the Portfolio purchases Wrapper Agreements that should offset
substantially all of the price fluctuations typically associated with
longer-term Fixed Income Securities.
It is important to note the distinction between the Portfolio and short-term
investments such as money market funds. The securities held by the Portfolio
have a longer average maturity than those of money market funds. Because a money
market fund has a shorter average maturity, its yield will track the direction
of current market rates of return more closely than the Portfolio. For example,
in a rising interest rate environment, money market yields may rise more quickly
than will the Portfolio's. In a falling interest rate environment, money market
yields may fall more quickly than the Portfolio's. Over the long-term, however,
intermediate and long-term Fixed Income Securities such as those purchased by
the Portfolio have historically offered higher yields than short-term
investments (i.e., money market funds).
RISKS OF WRAPPER AGREEMENTS. Each Wrapper Agreement obligates the Wrapper
Provider to maintain the "Book Value" of a portion of the Portfolio's assets
("Covered Assets") up to a specified maximum dollar amount, upon the
<PAGE>
occurrence of certain specified events. The Book Value of the Covered Assets is
their purchase price (i) plus interest on the Covered Assets at a rate specified
in the Wrapper Agreement ("Crediting Rate"), and (ii) less an adjustment to
reflect any defaulted securities. The Crediting Rate used in computing Book
Value is calculated by a formula specified in the Wrapper Agreement and is
adjusted periodically. In the case of Wrapper Agreements purchased by the
Portfolio, the Crediting Rate is the actual interest earned on the Covered
Assets, or an index-based approximation thereof, plus or minus an adjustment for
an amount receivable from or payable to the Wrapper Provider based on
fluctuations in the market value of the Covered Assets. As a result, while the
Crediting Rate will generally reflect movements in the market rates of interest,
it may at any time be more or less than these rates or the actual interest
income earned on the Covered Assets. The Crediting Rate may also be impacted by
defaulted securities and by increases and decreases of the amount of Covered
Assets as a result of contributions and withdrawals tied to the sale and
redemption of Shares. Furthermore, the premiums due Wrapper Providers in
connection with the Portfolio's investments in Wrapper Agreements are offset
against and thus reduce the Crediting Rate. These premiums are generally paid
quarterly. In no event will the Crediting Rate fall below zero percent under the
Wrapper Agreements entered into by the Portfolio.
Under the terms of a typical Wrapper Agreement, if the market value (plus
accrued interest on the underlying securities) of the Covered Assets is less
than their Book Value at the time the Covered Assets are liquidated in order to
provide proceeds for withdrawals of Portfolio interests resulting from
redemptions of Shares by Plan participants, the Wrapper Provider becomes
obligated to pay to the Portfolio the difference. Conversely, the Portfolio
becomes obligated to make a payment to the Wrapper Provider if it is necessary
for the Portfolio to liquidate Covered Assets at a price above their Book Value
in order to make withdrawal payments. (Withdrawals generally will arise when the
Fund must pay shareholders who redeem their Shares.) Because it is anticipated
that each Wrapper Agreement will cover all Covered Assets up to a specified
dollar amount, if more than one Wrapper Provider becomes obligated to pay to the
Portfolio the difference between Book Value and market value (plus accrued
interest on the underlying securities), each Wrapper Provider will be obligated
to pay a pro-rata amount in proportion to the maximum dollar amount of coverage
provided. Thus, the Portfolio will not have the option of choosing which Wrapper
Agreement to draw upon in any such payment situation.
The terms of the Wrapper Agreements vary concerning when these payments must
actually be made between the Portfolio and the Wrapper Provider. In some cases,
payments may be due upon disposition of the Covered Assets; other Wrapper
Agreements provide for settlement only upon termination of the Wrapper Agreement
or total liquidation of the Covered Assets. A Wrapper
<PAGE>
Provider's obligation to make payments to the Portfolio may be subject to prior
notice requirements for certain types of withdrawals from the Portfolio. For
example, the Wrapper Agreement may require that one year's notice be provided to
obtain Book Value payments with respect to withdrawals to provide liquidity for
Fund redemptions that are not directed by Plan participants. The Portfolio does
not anticipate that it will be required to liquidate Covered Assets for the
purpose of paying such withdrawals before any such notice period has expired.
However, in the unlikely event that this occurs, the NAV of the Portfolio, and
hence of the Shares, may be reduced. Additionally, a Wrapper Provider's
obligation to make payments for Plan withdrawals after twelve months' prior
notice (as opposed to those directed by Plan participants) may require
adjustments to the Crediting Rate and increases in the Portfolio's holdings of
short term investments, which might adversely affect the return of the Portfolio
and the Fund. Please see discussion of "Liquidity Reserve" herein.
The Fund expects that the use of Wrapper Agreements by the Portfolio will under
most circumstances permit the Fund to maintain a constant NAV per Share and to
pay dividends that will generally reflect over time both the interest income of,
and market gains and losses on, the Covered Assets held by the Portfolio less
the expenses of the Fund and the Portfolio. However, there can be no guarantee
that the Fund will maintain a constant NAV per Share or that any Fund
shareholder or Plan participant will realize the same investment return as might
be realized by investing directly in the Portfolio assets other than the Wrapper
Agreements. For example, a default by the issuer of a Portfolio Security or a
Wrapper Provider on its obligations might result in a decrease in the value of
the Portfolio assets and, consequently, the Shares. The Wrapper Agreements
generally do not protect the Portfolio from loss if an issuer of Portfolio
Securities defaults on payments of interest or principal. Additionally, a Fund
shareholder may realize more or less than the actual investment return on the
Portfolio Securities depending upon the timing of the shareholder's purchases
and redemption of Shares, as well as those of other shareholders. Furthermore,
there can be no assurance that the Portfolio will be able at all times to obtain
Wrapper Agreements. Although it is the current intention of the Portfolio to
obtain such agreements covering all of its assets (with the exceptions noted),
the Portfolio may elect not to cover some or all of its assets with Wrapper
Agreements should Wrapper Agreements become unavailable or should other
conditions such as cost, in Bankers Trust's sole discretion, render their
purchase inadvisable.
If, in the event of a default of a Wrapper Provider, the Portfolio were unable
to obtain a replacement Wrapper Agreement, participants redeeming Shares might
experience losses if the market value of the Portfolio's assets no longer
covered by the Wrapper Agreement is below Book Value. The combination of the
default of a Wrapper Provider and an inability to obtain a replacement agreement
could render the Portfolio and the Fund unable to achieve their investment
objective of
<PAGE>
maintaining a stable NAV per Share. If the Board of Trustees of the Portfolio
Trust (the "Portfolio Trust Board") determines that a Wrapper Provider is unable
to make payments when due, that Board may assign a fair value to the Wrapper
Agreement that is less than the difference between the Book Value and the market
value (plus accrued interest on the underlying securities) of the applicable
Covered Assets and the Portfolio might be unable to maintain NAV stability.
Some Wrapper Agreements require that the Portfolio maintain a specified
percentage of its total assets in short-term investments ("Liquidity Reserve").
These short-term investments must be used for the payment of withdrawals from
the Portfolio and Portfolio expenses. To the extent the Liquidity Reserve falls
below the specified percentage of total assets, the Portfolio is obligated to
direct all net cash flow to the replenishment of the Liquidity Reserve. The
obligation to maintain a Liquidity Reserve may result in a lower return for the
Portfolio and the Fund than if these funds were invested in longer-term Fixed
Income Securities. The Liquidity Reserve required by all Wrapper Agreements is
not expected to exceed 20% of the Portfolio's total assets. However, the
Liquidity Reserve amount may be required to be increased above this limit as a
result of anticipated Plan redemptions within one year.
Wrapper Agreements also require that the Covered Assets have a specified
duration or maturity, consist of specified types of securities or be of a
specified investment quality. The Portfolio will purchase Wrapper Agreements
whose criteria in this regard are consistent with the Portfolio's (and the
Fund's) investment objective and policies as described in this Prospectus.
Wrapper Agreements may also require the disposition of securities whose ratings
are downgraded below a certain level. This may limit the Portfolio's ability to
hold such downgraded securities. Please see the SAI for additional information
concerning Wrapper Agreements.
DERIVATIVES. The Portfolio may invest in various instruments, including the
Wrapper Agreements, that are commonly known as "derivatives". Generally, a
derivative is a financial arrangement the value of which is based on, or
"derived" from, a traditional security, asset or market index. Some derivatives
such as mortgage-related and other asset-backed securities are in many respects
like any other investments, although they may be more volatile or less liquid
than more traditional debt securities. There are, in fact, many different types
of derivatives and many different ways to use them. There are a range of risks
associated with those uses. Futures contracts and options are commonly used for
traditional hedging purposes to attempt to protect an investor from exposure to
changing interest rates, securities prices or currency exchange rates and for
cash management purposes as a low cost method of gaining exposure to a
particular securities market without investing directly in those securities.
However, some
<PAGE>
derivatives are used for leverage, which tends to magnify the effect of an
instrument's price changes as market conditions change. Leverage involves the
use of a small amount of money to control a large amount of financial assets and
can, in some circumstances, lead to significant losses. Bankers Trust uses
derivatives only in circumstances where it believes they offer the most economic
means of improving the risk/reward profile of the Portfolio. Derivatives will
not be used to increase portfolio risk above the level that could be achieved
using only traditional investment securities or to acquire exposure to changes
in the value of assets or indexes that by themselves would not be purchased for
the Portfolio. The use of derivatives for non-hedging purposes may be considered
speculative. A further description of the derivatives that the Portfolio may use
and some of their associated risks is found in "Securities and Investment
Practices of the Portfolio."
PORTFOLIO TURNOVER. The annual portfolio turnover rate measures the frequency
that the Portfolio sells and replaces the value of its securities within one
year. A portfolio turnover rate of 100% means that the Portfolio sold and
purchased investments equal to the average value of the Portfolio for a
particular time period. High turnover can increase the Fund's transaction costs,
thereby lowering its returns, and may increase your tax liability. The portfolio
manager does not have a target portfolio turnover rate. The turnover will depend
on the portfolio manager's assessment of how often to trade, in light of market
conditions and the fund objective.
YEAR 2000 MATTERS. Like other mutual funds, financial and business organizations
and individuals around the world, the Fund could be adversely affected if the
computer systems used by Bankers Trust and other service providers do not
properly process and calculate date-related information and data from and after
January 1, 2000. This is commonly known as the "Year 2000 Problem." Bankers
Trust is taking steps that it believes are reasonably designed to address the
Year 2000 Problem with respect to computer systems that it uses and to obtain
reasonable assurances that comparable steps are being taken by the Fund's other
major service providers. At this time, however, there can be no assurance that
these steps will be sufficient to avoid any adverse impact to the Fund nor can
there be any assurance that the Year 2000 Problem will not have an adverse
effect on the companies whose securities are held by the Fund or on global
markets or economies, generally.
SPECIAL INFORMATION CONCERNING THE MASTER-FEEDER FUND STRUCTURE
Unlike other mutual funds that directly acquire and manage their own portfolio
securities, the Fund seeks to achieve its investment objective by investing all
of
<PAGE>
its net investable assets in the Portfolio, a separate subtrust of a registered
investment company with the same investment objective as the Fund. Therefore, a
Fund shareholder's interest in the Portfolio's assets is indirect. In addition
to selling a beneficial interest to the Fund, the Portfolio may sell beneficial
interests to other mutual funds or institutional investors. Such investors will
invest in the Portfolio on the same terms and conditions and will pay a
proportionate share of the Portfolio's expenses. However, the other investors
investing in the Portfolio are not required to sell their shares or other
interests at the same public offering price as the Fund, due to variations in
sales commissions and other operating expenses. Therefore, investors in the Fund
should be aware that these differences may result in differences in returns
experienced by investors in the different entities that invest in the Portfolio.
Such differences in returns are also present in other mutual fund structures.
Information concerning other holders of interests in the Portfolio is available
from Bankers Trust, as the Administrator, at 1-800-677-7596.
The master-feeder fund structure is relatively complex, so shareholders should
carefully consider this investment approach. Smaller investors in the Portfolio
may be materially affected by the actions of larger investors in the Portfolio.
For example, if a large investor withdraws from the Portfolio, the remaining
investors may experience higher pro rata operating expenses, thereby producing
lower returns (however, this possibility exists as well for traditionally
structured funds that have large investors). Additionally, the Portfolio may
become less diverse, resulting in increased portfolio risk. Also, investors with
a greater pro rata ownership in the Portfolio could have effective voting
control of its operations. Except as permitted by the SEC, whenever the Trust is
requested to vote on matters pertaining to the Portfolio, the Trust will hold a
meeting of shareholders of the Fund and will cast all of its votes in the same
proportion as the votes of the Fund's shareholders. Fund shareholders who do not
vote will not affect the Trust's votes on the Portfolio's matters; the Trust's
votes representing Fund shareholders not voting will be voted by the Trustees or
officers of the Trust in the same proportion as the Fund shareholders who do, in
fact, vote. Certain changes in the Portfolio's investment objective, policies or
restrictions may require the Fund to withdraw its interest in the Portfolio. Any
such withdrawal could result in a distribution "in kind" of Portfolio assets (as
opposed to a cash distribution from the Portfolio). If securities are
distributed, the Fund could incur brokerage, tax or other charges in converting
the securities to cash. In addition, the distribution in kind may result in a
less diversified portfolio of investments or adversely affect the liquidity of
the Fund. Notwithstanding the above, there are other means for meeting
redemption requests, such as borrowing. The Fund may withdraw its investment
from the Portfolio at any time, if the Board of Trustees of the Trust (the
"Trust Board") determines that it is in the best interests of the shareholders
of the Fund to do so. Upon any such withdrawal, the Trust Board would consider
what action might be taken,
<PAGE>
including the investment of all the assets of the Fund in another pooled
investment entity having the same investment objective as the Fund or the
retaining of an investment adviser to manage the Fund's assets in accordance
with the investment policies described herein with respect to the Portfolio.
The Fund's investment objective is not a fundamental policy and may be changed
upon notice to, but without the need for approval of, its shareholders. If there
is a change in the Fund's investment objective, its shareholders should consider
whether the Fund remains an appropriate investment in light of their
then-current needs. The investment objective of the Portfolio also is not a
fundamental policy. Shareholders of the Fund will receive 30 days' prior written
notice with respect to any change in the investment objective of the Fund or the
Portfolio. See "Investment Restrictions" in the SAI for a description of the
fundamental policies of the Portfolio that cannot be changed without approval by
"the vote of a majority of the outstanding voting securities" (as defined in the
Investment Company Act of 1940 (the "1940 Act")) of the Portfolio.
SECURITIES AND INVESTMENT PRACTICES OF THE PORTFOLIO
U.S. GOVERNMENT SECURITIES. U.S. government securities are high-quality debt
securities issued or guaranteed by the U.S. Treasury or by an agency or
instrumentality of the U.S. government. Not all U.S. government securities are
backed by the full faith and credit of the United States. For example,
securities issued by the Farm Credit Banks or by the FNMA are supported by the
instrumentality's right to borrow money from the U.S. Treasury under certain
circumstances. However, securities issued by certain other U.S. agencies or
instrumentalities are supported only by the credit of the entity that issued
them.
OTHER U.S. DOLLAR-DENOMINATED FIXED INCOME SECURITIES. Bonds and other debt
instruments are used by issuers to borrow money from investors. The issuer pays
the investor a fixed or variable rate of interest and must repay the amount
borrowed at maturity. Some debt securities, such as zero coupon bonds, do not
pay current interest but are purchased at a discount from their face values.
Debt securities, loans and other direct debt have varying degrees of quality and
varying levels of sensitivity to changes in interest rates. Longer-term bonds
are generally more sensitive to interest rate changes than short-term bonds.
U.S. DOLLAR-DENOMINATED SOVEREIGN AND SUPRANATIONAL FIXED INCOME SECURITIES.
Debt instruments issued or guaranteed by foreign governments, agencies and
supranational organizations ("sovereign debt obligations"), especially sovereign
debt obligations of developing countries, may involve a high degree of risk. The
issuer of the obligation or the governmental authorities that control the
repayment of the debt may be unable or unwilling to
<PAGE>
repay principal and interest when due and may require renegotiation or
rescheduling of debt payments. In addition, prospects for repayment of principal
and interest may depend on political as well as economic factors.
MORTGAGE-BACKED SECURITIES. The Portfolio may purchase mortgage-backed
securities issued by the U.S. government, its agencies or instrumentalities and
non-governmental entities such as banks, mortgage lenders or other financial
institutions. Mortgage-backed securities include mortgage pass-through
securities, mortgage-backed bonds and mortgage pay-through securities. A
mortgage pass-through security is a pro rata interest in a pool of mortgages
where the cash flow generated from the mortgage collateral is passed through to
the security holder. A mortgage-backed bond is a general obligation of the
issuer, payable out of the issuer's general funds and additionally secured by a
first lien on a pool of mortgages. Mortgage pay-through securities exhibit
characteristics of both pass-through and mortgage-backed bonds. The mortgage
pass-through securities issued by non-governmental entities such as banks,
mortgage lenders or other financial institutions in which the Portfolio may
invest include private label mortgage pass-through securities and whole loans.
Mortgage-backed securities also include other debt obligations secured by
mortgages on commercial real estate or residential properties. Other types of
mortgage-backed securities will likely be developed in the future, and the
Portfolio may invest in them if Bankers Trust determines they are consistent
with the Portfolio's investment objective and policies.
Unlike ordinary Fixed Income Securities, which generally pay a fixed rate of
interest and return principal upon maturity, mortgage-backed securities repay
both interest income and principal as part of their periodic payments. Because
the mortgages underlying mortgage-backed certificates can be prepaid at any time
by homeowners or corporate borrowers, mortgage-backed securities give rise to
certain unique "pre-payment" risks. Prepayment risk or call risk is the
likelihood that, during periods of falling interest rates, securities with high
stated interest rates will be prepaid (or "called") prior to maturity, requiring
the Portfolio to invest the proceeds at generally lower interest rates.
COLLATERALIZED MORTGAGE OBLIGATIONS. CMOs are pay-through securities
collateralized by mortgages or mortgage-backed securities. CMOs are issued in
classes and series that have different maturities and often are retired in
sequence. The issuer of a series of CMOs may elect to be treated as a REMIC.
ASSET-BACKED SECURITIES. Asset-backed securities have structural characteristics
similar to mortgage-backed securities. However, the underlying assets are not
first lien mortgage loans or interests therein but include assets such as motor
vehicle installment sale contracts, other installment sale contracts, home
equity loans, leases of various types of real and personal property, and
<PAGE>
receivables from revolving credit (credit card) agreements. Such assets are
securitized through the use of trusts or special purpose corporations. Payments
or distributions of principal and interest on asset-backed securities may be
guaranteed up to certain amounts and for a certain time period by a letter of
credit or a pool insurance policy issued by a financial institution unaffiliated
with the issuer, or other credit enhancements may be present.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities do not have the benefit
of the same type of security interest in the related collateral. Credit card
receivables are generally unsecured, and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, many of which
give such debtors the right to avoid payment of certain amounts owed on the
credit cards, thereby reducing the balance due. There is the risk in connection
with automobile receivables that recoveries on repossessed collateral may not,
in some cases, be available to support payments on those securities.
U.S. DOLLAR-DENOMINATED FOREIGN SECURITIES. The Portfolio may invest a portion
of its assets in the dollar-denominated debt securities of foreign companies.
Investing in the securities of foreign companies involves more risks than
investing in securities of U.S. companies. Their value is subject to economic
and political developments in the countries where the companies operate and to
changes in foreign currency values. Values may also be affected by foreign tax
laws, changes in foreign economic or monetary policies, exchange control
regulations and regulations involving prohibitions on the repatriation of
foreign currencies.
In general, less information may be available about foreign companies than about
U.S. companies, and foreign companies are generally not subject to the same
accounting, auditing and financial reporting standards as are U.S. companies.
Foreign securities markets may be less liquid and subject to less regulation
than the U.S. securities markets. The costs of investing outside the United
States frequently are higher than those in the United States. These costs
include relatively higher brokerage commissions and foreign custody expenses.
ZERO COUPON SECURITIES. Zero Coupon Securities including CATS, TIGRs and TRs,
are the separate income or principal components of a debt instrument. These
involve risks that are similar to those of other debt securities, although they
may be more volatile, and the value of certain zero coupon securities moves in
the same direction as interest rates. Zero coupon bonds do not make regular
interest payments.
RULE 144A SECURITIES. Rule 144A Securities are securities that are not
registered for sale under the federal securities laws but can be resold to
<PAGE>
institutions pursuant to Rule 144A under the Securities Act of 1933. Provided
that a dealer or institutional trading market in such securities exists, these
restricted securities are treated as exempt from the Portfolio's 15% limit on
illiquid securities. Under the supervision of the Portfolio Trust Board, Bankers
Trust determines the liquidity of restricted securities; and through reports
from Bankers Trust, the Portfolio Trust Board monitors trading activity in
restricted securities. If institutional trading in restricted securities were to
decline, the liquidity of the Portfolio could be adversely affected.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Portfolio may purchase
securities on a when-issued or delayed delivery basis. Delivery of and payment
for these securities may take place as late as a month or more after the date of
the purchase commitment. The value of these securities is subject to market
fluctuations during this period, and no income accrues to the Portfolio until
settlement takes place.
REPURCHASE AGREEMENTS. In a repurchase agreement, the Portfolio buys a security
at one price and simultaneously agrees to sell it back to the seller on a
specific date and at a higher price reflecting a market rate of interest
unrelated to the coupon rate or maturity of the underlying security. Delays or
losses could result if the other party to the agreement defaults or becomes
insolvent.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS. In a reverse repurchase
agreement, the Portfolio temporarily transfers possession of a portfolio
instrument to another party in return for cash. This could increase the risk of
fluctuation in the Fund's yield or in the market value of its interest in the
Portfolio. In a dollar roll, the Portfolio sells mortgage-backed or other
securities for delivery in the current month and simultaneously contracts to
purchase substantially similar securities on a specified future date. Reverse
repurchase agreements and dollar rolls are forms of borrowing and will be
counted towards the Portfolio's borrowing restrictions. See "Borrowing" on the
following pages and in the SAI. Wrapper Agreements would cover the cash proceeds
of such transactions but not the portfolio instruments transferred to another
party until possession of such instruments is returned to the Portfolio.
SHORT-TERM INVESTMENTS. The Portfolio's assets may be invested in high quality
short-term investments with remaining maturities of 397 days or less to maintain
the Liquidity Reserve, to meet anticipated redemptions and expenses for
day-to-day operating purposes and when, in Bankers Trust's opinion, it is
advisable to adopt a temporary defensive position because of unusual and adverse
conditions affecting the respective markets.
BORROWING. The Portfolio will not borrow money (including through reverse
repurchase agreements or dollar roll transactions) for any purpose in excess of
<PAGE>
5% of its total assets, except that it may borrow for temporary or emergency
purposes up to 1/3 of its total assets. Under the 1940 Act, the Portfolio is
required to maintain continuous asset coverage of 300% with respect to such
borrowings and to sell (within three days) sufficient portfolio holdings to
restore such coverage if it should decline to less than 300% due to market
fluctuations or otherwise, even if such liquidation of the Portfolio's holdings
may be disadvantageous from an investment standpoint.
Leveraging by means of borrowing may exaggerate the effect of any increase or
decrease in the value of the Portfolio's securities and the Fund's NAV per
Share, and money borrowed by the Portfolio will be subject to interest and other
costs (which may include commitment fees and/or the cost of maintaining minimum
average balances) that may exceed the income received from the securities
purchased with the borrowed funds. It is not the intention of Bankers Trust to
use leverage as a normal practice in the investment of the Portfolio's assets.
HEDGING STRATEGIES. The Portfolio may use certain strategies designed to adjust
the overall risk of its investment portfolio. These "hedging" strategies involve
derivative contracts, including U.S. Treasury and Eurodollar futures contracts
and exchange-traded put and call options on such futures contracts. New
financial products and risk management techniques continue to be developed and
may be used if consistent with the Portfolio's investment objective and
policies. Among other purposes, these hedging strategies may be used to
effectively maintain a desired portfolio duration or to protect against market
risk should the Portfolio change its investments among different types of Fixed
Income Securities. In this respect, these hedging strategies are designed for
different purposes than the investments in Wrapper Agreements. The SAI contains
further information on these strategies.
The Portfolio might not use any hedging strategies, and there can be no
assurance that any strategy used will succeed. If the Adviser is incorrect in
its judgment on market values, interest rates or other economic factors in using
a hedging strategy, the Portfolio may have lower net income and a net loss on
the investment. Each of these strategies involves certain risks, which include:
(Bullet) the fact that the skills needed to use hedging instruments are
different from those needed to select securities for the Portfolio;
(Bullet) the possibility of imperfect correlation, or even no correlation,
between the price movements of hedging instruments and price movements of the
securities or currencies being hedged;
<PAGE>
(Bullet) possible constraints placed on the Portfolio's ability to purchase or
sell portfolio investments at advantageous times due to the need for the
Portfolio to maintain "cover" or to segregate securities; and
(Bullet) the possibility that the Portfolio is unable to close out or liquidate
its hedged position.
ASSET COVERAGE. To assure that the Portfolio's use of futures contracts and
related options, as well as when-issued and delayed-delivery securities, are not
used to achieve investment leverage, the Portfolio will cover such transactions,
as required under applicable interpretations of the SEC, either by owning the
underlying securities or by segregating liquid securities with the Portfolio's
custodian (Bankers Trust) in an amount at all times equal to or exceeding the
Portfolio's commitment with respect to these instruments or contracts. Assets
that are segregated for purposes of providing cover need not be physically
segregated in a separate account provided that the custodian notes on its books
that such assets are segregated. The Portfolio will also cover its use of
Wrapper Agreements to the extent required to avoid the creation of a "senior
security" (as defined in the 1940 Act) in connection with its use of such
agreements.
PERFORMANCE
The Fund's performance may be used from time to time in advertisements,
shareholders reports or other communications to shareholders or prospective
shareholders. Performance information may include investment results and/or
comparisons of its investment results to the IBC Averages, Lipper Averages, an
appropriate guaranteed interest contract ("GIC") average, or other various
unmanaged indices or results of other mutual funds or investment or saving
vehicles. The Portfolio's strategies, holdings and performance will be detailed
twice a year in the Fund's financial reports, which are sent to all Fund
shareholders. From time to time, the Shares' ranking may be quoted from various
sources, such as Lipper Analytical Services, Inc., Value Line, Inc. and
Morningstar, Inc.
Mutual fund performance is commonly measured as total return and/or yield. The
performance of a class of shares is affected by its expenses and those of the
Portfolio.
EXPLANATION OF TERMS
Total Return is the change in value of an investment in the Shares over a given
period, assuming reinvestment of any dividends and capital gain distributions. A
CUMULATIVE total return reflects actual performance over a stated period of
time. An AVERAGE annual total return is a hypothetical rate of return that, if
<PAGE>
achieved annually, would have produced the same cumulative total return if
performance had been constant over the entire period. Average annual total
return calculations smooth out variations in performance; they are not the same
as actual year-by-year results. Average annual total returns covering periods of
less than one year assume that performance will remain constant for the rest of
the year.
YIELD refers to the income generated by an investment in the Shares over a given
period of time, expressed as an annual percentage rate. Yields are calculated
according to a standard that is required for all stock and bond funds. Because
this differs from other accounting methods, the quoted yield may not equal the
income actually paid to shareholders.
Unlike some bank deposits or other investments that pay a fixed yield for a
stated period of time, the total return of the Shares will vary depending upon
interest rates, the current market value of the Portfolio Securities and the
Wrapper Agreements and changes in the expenses of the Shares and the Portfolio.
In addition, during certain periods for which total return may be provided,
Bankers Trust may have voluntarily agreed to waive portions of its fees, or to
reimburse certain operating expenses of the Fund or the Portfolio, on a
month-to-month basis. Such waivers will have the effect of increasing the Fund's
net income (and therefore its yield and total return) during the period such
waivers are in effect.
TOTAL RETURNS AND YIELDS ARE BASED ON PAST RESULTS AND ARE NOT AN INDICATION OF
FUTURE PERFORMANCE.
MANAGEMENT OF THE TRUSTS
BOARDS OF TRUSTEES
The Trust and the Portfolio Trust (collectively the "Trusts") are each governed
by a Board of Trustees that is responsible for protecting the interests of
investors. A majority of the Trustees who are not "interested persons" (as
defined in the 1940 Act) of either Trust have adopted written procedures
reasonably appropriate to deal with potential conflicts of interest arising from
the fact that some of the same individuals may be Trustees of both Trusts, up to
and including creating separate boards of trustees. See "Management of the
Trusts" in the SAI for more information with respect to the Trustees and
officers of the Trusts.
INVESTMENT ADVISER
The Fund has not retained the services of an investment adviser because it seeks
to achieve its investment objective by investing all of its net investable
assets in
<PAGE>
the Portfolio. The Portfolio has retained the services of Bankers Trust as its
investment adviser pursuant to an Investment Advisory Agreement between the
Portfolio Trust and Bankers Trust dated April 28, 1993 (the "Investment Advisory
Agreement").
BANKERS TRUST COMPANY AND ITS AFFILIATES
Bankers Trust Company, a New York banking corporation with principal offices at
130 Liberty Street (One Bankers Trust Plaza), New York, New York 10006, is a
wholly owned subsidiary of Bankers Trust New York Corporation. Bankers Trust
conducts a variety of general banking and trust activities and is a major
wholesale supplier of financial services to the international and domestic
institutional market.
As of September 30, 1998, Bankers Trust Corporation was the seventh largest bank
holding company in the United States with total assets of over $150 billion.
Bankers Trust is a worldwide financial services firm 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. Bankers Trust is
one of the nation's largest and most experienced investment managers, with over
$350 billion in assets under management globally. The scope of Bankers Trust's
investment management capability is unique due to its leadership positions in
both active and passive quantitative management and its presence in major equity
and fixed income markets around the world. Bankers Trust's officers have had
extensive experience in managing investment portfolios having objectives similar
to those of the Fund and the Portfolio. Bankers Trust has more than 50 years of
experience managing retirement assets for the nation's largest corporations and
institutions.
Bankers Trust, subject to the supervision and direction of the Portfolio Trust's
Board, manages the Portfolio in accordance with the Portfolio's investment
objective and stated investment policies, makes investment decisions for the
Portfolio, places orders to purchase and sell securities and other financial
instruments on behalf of the Portfolio and employs professional investment
managers and securities analysts who provide research services to the Portfolio.
Bankers Trust may utilize the expertise of any of its worldwide subsidiaries and
affiliates to assist it in its role as investment adviser. All orders for
investment transactions on behalf of the Portfolio are placed by Bankers Trust
with broker-dealers and other financial intermediaries that it selects,
including those affiliated with Bankers Trust. A Bankers Trust affiliate will be
used in connection with a
<PAGE>
purchase or sale of an investment for the Portfolio only if Bankers Trust
believes that the affiliate's charge for the transaction does not exceed usual
and customary levels. The Portfolio will not invest in obligations, including
Wrapper Agreements, for which Bankers Trust or any of its affiliates is the
ultimate obligor or accepting bank. The Portfolio may, however, invest in the
obligations of correspondents and customers of Bankers Trust.
The Investment Advisory Agreement provides for the Portfolio Trust to pay
Bankers Trust a fee, accrued daily and paid monthly, of 0.35% per year of the
average daily net assets of the Portfolio. Bankers Trust has indicated that it
will voluntarily waive all but 0.20% of this fee. 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 Trusts described in
this Prospectus and the SAI without violation of the Glass-Steagall Act or other
applicable banking laws or regulations. State laws on this issue may differ from
the interpretations of relevant federal law, and banks and financial
institutions may be required to register as dealers pursuant to state securities
law.
PORTFOLIO MANAGEMENT
Eric Kirsch (CFA), a Managing Director of Bankers Trust, has been responsible
for the day-to-day investment management of the Portfolio since its inception.
Mr. Kirsch heads the stable value investment group of Bankers Trust's Global
Investment Management business. In this capacity, he manages stable value
portfolios and coordinates fixed income portfolio management and trading
functions with regards to these portfolios' investments. He joined Bankers Trust
in 1980.
Louis R. D'Arienzo, a Vice President and Portfolio Manager of the structured
fixed income group at Bankers Trust, has managed the Fixed Income Securities of
the Portfolio since its inception. Mr. D'Arienzo has 17 years of trading and
investment experience in structured portfolios and quantitative analysis of
fixed income and derivative securities. He joined Bankers Trust in 1981.
John D. Axtell, a Principal and Stable Value Portfolio Manager at Bankers Trust,
has managed the Wrapper Agreements held by the Portfolio since its inception.
Mr. Axtell joined Bankers Trust in 1990.
<PAGE>
Bankers Trust investment personnel may invest in securities for their own
account pursuant to a code of ethics that establishes procedures for personal
investing and restricts certain transactions.
ADMINISTRATOR
Under an Administration and Services Agreement with the Trust, Bankers Trust
calculates the NAV per Share of the Fund and generally assists the Trust Board
in all aspects of the administration and operation of the Fund. This
Administration and Services Agreement provides for the Trust to pay Bankers
Trust a fee, accrued daily and paid monthly, of 0.25% per year of the average
daily net assets of the Shares.
Under an Administration and Services Agreement with the Portfolio Trust, Bankers
Trust calculates the NAV of the Portfolio and generally assists the Portfolio in
all aspects of the administration and operation of the Portfolio. This
Administration and Services Agreement provides for the Portfolio to pay Bankers
Trust a fee, accrued daily and paid monthly, of 0.05% per year of the
Portfolio's average daily net assets. Under this Administration and Services
Agreement, Bankers Trust may delegate one or more of its responsibilities to
others, including the Distributor or its affiliates, at Bankers Trust's expense.
In addition, subject to certain conditions, Bankers Trust may, out of its own
resources, make ongoing payments to brokerage firms, plan administrators and
fiduciaries, financial institutions (including banks) and others that facilitate
the administration and servicing of shareholder accounts.
DISTRIBUTOR
ICC, as Distributor, serves as the Trust's principal underwriter on a best
efforts basis. In addition, ICC and its affiliates provide administration and
distribution services for other registered investment companies. ICC is a
registered broker/dealer and is unaffiliated with Bankers Trust. Its principal
offices are at Two Portland Square, Portland, ME 04101.
CUSTODIAN AND TRANSFER AGENT
Bankers Trust acts as custodian for the assets of the Portfolio and serves as
the Trust's transfer agent (the "Transfer Agent") under the Administration and
Services Agreement with the Trust. It is not separately compensated for these
<PAGE>
services and may, at its own expense, delegate certain services to other service
providers.
NET ASSET VALUE
The NAV per Share is calculated on each day on which the New York Stock
Exchange, Inc. (the "NYSE") is open (each such day being a "Valuation Day"). The
NYSE is currently open on each day, Monday through Friday, except (a) January
1st, Martin Luther King Day (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 if the NYSE closes early, at the time of the early
closing. The NAV per Share is computed by dividing the value of the Fund's
assets (i.e., the value of its investment in the Portfolio and other assets, if
any), less all liabilities, by the total number of its Shares outstanding. The
Portfolio's securities and other assets are valued primarily on the basis of
market quotations or, if quotations are not readily available, by a method that
the Portfolio Trust Board believes accurately reflects fair value.
Pursuant to procedures adopted by the Portfolio Trust Board, the fair value of a
Wrapper Agreement ("Wrapper Value") generally will be equal to the difference
between the Book Value and the market value (plus accrued interest on the
underlying securities) of the applicable Covered Assets. If the market value
(plus accrued interest on the underlying securities) of the Covered Assets is
greater than their Book Value, the Wrapper Value will be reflected as a
liability of the Portfolio in the amount of the difference, i.e., a negative
value, reflecting the potential liability of the Portfolio to the Wrapper
Provider. If the market value (plus accrued interest on the underlying
securities) of the Covered Assets is less than their Book Value, the Wrapper
Value will be reflected as an asset of the Portfolio in the amount of the
difference, i.e., a positive value, reflecting the potential liability of the
Wrapper Provider to the Portfolio. In performing its fair value determination,
the Portfolio Trust Board expects to consider the creditworthiness and ability
of a Wrapper Provider to pay amounts due under the Wrapper Agreement. If the
Portfolio Trust Board determines that a Wrapper Provider is unable to make such
payments, that Board may assign a fair value to the Wrapper Agreement that is
less than the difference between the Book Value and the market value (plus
accrued interest on the underlying securities) of the
<PAGE>
applicable Covered Assets and the Portfolio might be unable to maintain NAV
stability.
Under procedures adopted by the Trust Board, an NAV per Share later determined
to have been inaccurate for any reason will be recalculated. Purchases and
redemptions made at an NAV per Share determined to have been inaccurate will be
adjusted, although in certain circumstances, such as where the difference
between the original NAV per Share and the recalculated NAV per Share divided by
the latter is 0.005 (1/2 of 1%) or less or shareholder transactions are
otherwise insubstantially affected, action is not required.
SHAREHOLDER AND ACCOUNT POLICIES
ACCOUNT INFORMATION
The Fund is offered solely to Plans that limit their participants' ability to
direct a withdrawal from the Fund to the following circumstances:
(Bullet) upon the Plan participant's death, retirement, disability or
termination;
(Bullet) to fund Plan participant loans and other "in service" withdrawals made
pursuant to the terms of the Plan; and
(Bullet) for transfers to other Plan investment options that are not "competing
funds." "Competing funds" are any fixed income investment options with a
targeted average duration of three years or less, or any investment option that
seeks to maintain a stable value per unit or share, including money market
funds. Transfers between the Fund and a non-competing fund will be required to
remain in the non-competing fund for a period of at least three months before
transfer to a competing fund.
The Wrapper Agreements require that each Plan maintain the foregoing
restrictions on withdrawals. Consequently, to protect the interests of
Shareholders, the Fund has the right to unilaterally redeem some or all Fund
Shares of a Plan which does not maintain and enforce these restrictions. These
involuntary redemptions will be subject to the Fund's 2.0% redemption fee.
Fund Shares will be owned by the Plans, either directly or beneficially through
vehicles such as bank collective funds or insurance company separate accounts
consisting solely of such Plans (collectively, "Plan Pools"), which will in turn
offer the Fund as an investment option to their participants. Investments in the
Fund may by themselves represent an investment option for a Plan or may be
combined with other investments as part of a pooled investment option for the
Plan. In the latter case, the Fund will require Plans to provide information
<PAGE>
regarding the withdrawal order and other characteristics of any pooled
investment option in which the Shares are included prior to a Plan's initial
investment in the Fund. Thereafter, the Fund will require the Plan to provide
information regarding any changes to the withdrawal order and other
characteristics of the pooled investment option before such changes are
implemented. The Fund in its sole discretion may decline to sell Shares to Plans
if the governing withdrawal order or other characteristics of any pooled
investment option in which the Shares are included is determined at any time to
be disadvantageous to the Fund.
Plan participants should contact their Plan administrator or the organization
that provides recordkeeping services if they have questions concerning their
account. Plan administrators and fiduciaries should call 1-800-677-7596 for
information regarding a Plan's account with the Fund.
TRANSACTIONS IN FUND SHARES
Plan participant-directed purchases, exchanges and redemptions of Shares are
handled in accordance with each Plan's specific provisions. Plans may have
different provisions with respect to the timing and method of purchases,
exchanges and redemptions by Plan participants. Plan participants should contact
their Plan administrator for details concerning how they may direct transactions
in Shares. It is the responsibility of the Plan administrator or other Plan
service provider to forward instructions for these transactions to Bankers
Trust.
Purchase orders for Shares that are received by Bankers Trust, as the Transfer
Agent, or other authorized agent of the Fund, prior to the Valuation Time on any
Valuation Day will be effective at that Valuation Time. The Trust and the
Distributor reserve the right to reject any purchase order. Certificates for
Shares will not be issued. Redemption requests will be processed at the NAV next
determined after a request for redemption is received in good order by Bankers
Trust. The Fund reserves the right to require written verification of whether a
redemption request is directed by Plan participants in accordance with Plan
provisions or is otherwise made by a withdrawing Plan and to establish the
authenticity of this information before processing a redemption request.
Normally, the Fund will make payment for all Shares redeemed under this
procedure within one business day after a request is received. In no event will
payment be made more than seven days after receipt of a redemption request in
good order. The Fund may suspend the right of redemption or postpone the date at
times when both the NYSE and the Fund's custodian bank (Bankers Trust) are
closed, or under any emergency circumstances as determined by the SEC.
<PAGE>
The Fund reserves the right to honor any request for redemption by making
payment in whole or in part in securities and in Wrapper Agreements, selected
solely in the discretion of Bankers Trust. To the extent that payment is made in
securities, a shareholder may incur brokerage expenses in converting these
securities into cash. To the extent that a redemption in kind includes Wrapper
Agreements, the Fund will obtain from the Portfolio and assign to the redeeming
Plan or Plan Pool one or more Wrapper Agreements issued by the Wrapper Providers
covering the Portfolio Securities distributed in kind. The terms and conditions
of Wrapper Agreements provided to a redeeming Plan shareholder will be the same
or substantially similar to the terms and conditions of the Wrapper Agreements
held by the Portfolio, including the requirement that the Plan maintain
restrictions on participant withdrawals noted above. The redeeming Plan or Plan
Pool must execute the assigned Wrapper Agreement(s) in order to obtain the
benefits provided thereunder. Wrapper Agreements are not liquid securities and
may impose restrictions on termination or withdrawal, including notice periods
of one year or longer for non-participant directed withdrawals. The maintenance
of Wrapper Agreements distributed in kind will also require that a Plan or Plan
Pool pay fees to the Wrapper Provider directly, rather than through the Fund,
and that the securities covered by the Wrapper Agreement continue to have a
specified duration or maturity, consist of specified types of securities or be
of a specified investment quality. Accordingly, although a redeeming Plan or
Plan Pool may freely buy and sell securities covered by a Wrapper Agreement, its
management of the securities must be consistent with Wrapper Agreement
requirements in order for it to obtain the benefits of the Wrapper Agreement.
Moreover, a Plan or Plan Pool may be required to obtain at its own expense the
services of a qualified investment manager to execute the Wrapper Agreement and
to manage the securities distributed in kind in conformity with the Wrapper
Agreement provisions and may incur additional administrative expenses in
managing this portfolio. Please see the SAI for additional information
concerning Wrapper Agreements and redemptions in kind.
The Fund has elected, however, to redeem Shares solely in cash up to the lesser
of $500,000 or 1% of the NAV of the Fund during any 90-day period for any one
shareholder. The Fund anticipates that it will exercise the right to redeem in
kind in the case of redemptions of Shares that are not directed by Plan
participants and that are made on less than twelve months' prior written notice
to Bankers Trust. In such case, or in the case where 5% or more of Plan assets
invested in the Fund are redeemed on any business day, a redemption request will
not be considered received in good order unless the Plan has provided to Bankers
Trust: (i) its current name; (ii) a listing of its trustee(s); (iii) copies of
Plan documents or summaries thereof describing the investment options available
to and the restrictions imposed upon Plan participants; (iv) information
indicating the allocation of Plan assets among available investment options; (v)
for the
<PAGE>
immediately preceding three year period, a monthly summary of all cash flow
activity for the Plan's investment option in which the Shares are included,
detailed by contribution and benefit payment amounts and amounts transferred to
and from other investment options; and (vi) in the case of Plans subject to
ERISA, identification of a "Qualified Professional Asset Manager" within the
meaning of Department of Labor Prohibited Transaction Class Exemption 84-14
(March 8, 1984). Redemptions of Shares that are not directed by Plan
participants and that are made on less than twelve months' prior written notice
will also be subject to a redemption fee, payable to the Fund, of 2.0% of the
proceeds of the redemption, whether in kind or in cash. However, this redemption
fee shall not apply to redemptions, the proceeds of which are immediately
reinvested in another class of shares of the Fund or in interests in another
investment company or entity that invests exclusively in the Portfolio. The Fund
reserves the right to withhold from redemption proceeds the 2.0% redemption fee
if 5% or more of Plan assets invested in the Fund are redeemed on any business
day pending a determination of whether the redemption fee is applicable. The
Fund may incur costs in obtaining new Wrapper Agreements from Wrapper Providers
to be distributed in kind. These costs will be payable from, and are not
expected to exceed, the 2.0% redemption fee. The redemption price may be more or
less than the shareholder's cost, depending upon the market value of the Fund's
assets (its interest in the Portfolio) at the time.
The offering price is the NAV per Share. Shares may be purchased only in those
states where they may be lawfully sold.
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
The Fund intends to distribute all of its net investment income and net capital
gains, if any, to its shareholders each year. Dividends from net investment
income are declared daily and are paid monthly, and any net capital gains are
distributed annually. An additional annual distribution ("Additional
Distribution") may be paid to satisfy the tax requirements (outlined below) that
the Fund distribute each year substantially all of its investment company
taxable income (see "Tax Considerations").
Dividends and other distributions paid on each class of the Fund's shares are
calculated at the same time and in the same manner. Dividends on the shares may
be expected to differ based upon each class's respective expenses. Dividends and
other distributions are automatically reinvested in additional Shares unless the
Plan participant directs otherwise.
The Fund may declare and pay dividends in amounts which are not equal to the
amount of the net investment income it actually earns. Consequently, in any year
the amount actually distributed may differ from the income earned. If, for any
<PAGE>
year, those distributions exceed the income earned, the excess may be considered
a return of capital. On the other hand, if the income earned exceeds the amount
of the dividends distributed, the Fund may make an Additional Distribution of
that excess. To enable the Fund to maintain a stable NAV per Share in the event
of an Additional Distribution, the Trust Board may declare, effective on the
ex-distribution date of an Additional Distribution, a reverse split of the
Shares in an amount that will cause the total number of Shares held by each
shareholder, including Shares acquired on reinvestment of that distribution, to
remain the same as before that distribution was paid.
For example, if the Fund declares an Additional Distribution of 10(cents) per
Share at a time when the NAV per Share is $10.00, a shareholder holding one
Share would receive 0.01 additional Shares on reinvestment of that distribution.
If there were no reverse split, the per Share NAV of the 1.01 Shares held by the
shareholder would be approximately $9.90, and the aggregate value thereof would
be $10.00. If a 1.01-for-1 reverse Share split were declared, however, the
shareholder's holdings would be consolidated back into one Share having an NAV
of $10.00. Thus, a reverse Share split will not affect the value of the total
holdings of a shareholder.
TAX CONSIDERATIONS
The Fund intends to qualify to be treated as a regulated investment company
under the Internal Revenue Code of 1986, as amended.
As a regulated investment company, the Fund will not be subject to U.S. federal
income tax on its investment company taxable income (generally consisting of net
investment income and the excess of net short-term capital gain over net
long-term capital loss, if any) and net capital gain (the excess of net
long-term capital gain over net short-term capital loss), if any, that it
distributes to its shareholders. The Fund intends to distribute to its
shareholders all of its investment company taxable income and net capital gain
at least annually, if necessary through Additional Distributions, and therefore
does not anticipate incurring any federal income tax liability.
For Plan participants utilizing the Fund as an investment option under their
Plan, dividend and capital gain distributions from the Fund generally will not
be subject to current taxation, but will accumulate on a tax-deferred basis. In
general, Plans are governed by a complex set of tax rules. See your Plan
administrator, your plan's Summary Plan Description, and/or a professional tax
adviser regarding the tax consequences of your participation in your Plan and of
any Plan contributions or withdrawals.
<PAGE>
ADDITIONAL INFORMATION ABOUT THE TRUSTS
The Fund is a mutual fund: an investment that pools shareholders' money and
invests it toward a specified goal. The Fund is a separate series of the Trust,
a Massachusetts business trust organized pursuant to a Declaration of Trust
dated February 28, 1992. The Portfolio is a separate subtrust of the Portfolio
Trust, a New York master trust fund organized pursuant to a Declaration of Trust
dated March 27, 1993.
Each Trust reserves the right to add additional series/subtrusts in the future.
There are currently no other funds investing in the Portfolio. Other funds
investing in the Portfolio may have sales charges and/or different expenses than
the Fund, which may affect performance. The Trust also reserves the right to
issue additional classes of shares of the Fund. Each class represents an
identical interest in the Fund's investment portfolio. As a result, the classes
have the same rights, privileges and preferences, except with respect to: (1)
the designation of each class; (2) the expenses allocated exclusively to each
class; and (3) voting rights on matters exclusively affecting a single class.
The Trust Board does not anticipate that there will be any conflicts among the
interests of the holders of the different classes and will take appropriate
action if any such conflict arises. For more information about the different
classes of shares of the Fund, please call 1-800-677-7596.
Each Trust may hold special meetings and mail proxy materials. These meetings
may be called to elect or remove Trustees, change fundamental policies, approve
the Portfolio's investment advisory agreement, or for other purposes.
Shareholders not attending a Trust meeting are encouraged to vote by proxy. The
Transfer Agent will mail proxy materials in advance, including a voting card and
information about the proposals to be voted on.
When matters are submitted for shareholder vote, shareholders of the Fund will
have one vote for each full Share held and proportionate, fractional votes for
fractional Shares held. A separate vote of the Fund is required on any matter
affecting only the Fund on which shareholders are entitled to vote; shareholders
of the Fund are not entitled to vote on Trust matters that do not affect the
Fund and do not require a separate vote of the Fund. All series of the Trust
will vote together on certain matters, such as electing Trustees or approving
independent auditors. Under certain circumstances, the shareholders of one of
series of the Trust could control the outcome of these votes. There normally
will be no meetings of shareholders for the purpose of electing Trustees unless
and until such time as less than a majority of Trustees holding office has been
elected by shareholders, at which time the Trustees then in office will call a
shareholders' meeting for the election of Trustees. Any Trustee may be removed
from office upon the vote of shareholders holding at least two-thirds of the
Trust's outstanding shares at a meeting called for that purpose. The Trustees
are required to call such a meeting upon the written request of shareholders
holding at least 10% of the Trust's outstanding shares. The Trust will also
assist shareholders in communicating with one another as provided for in the
1940 Act.
Each subtrust of the Portfolio Trust, including the Portfolio, will vote
separately on any matter involving that subtrust. Holders of interests in all
the subtrusts of the Portfolio Trust, however, will vote together to elect
Trustees of the Portfolio Trust and for certain other matters. The subtrusts of
the Portfolio Trust will vote together or separately on matters in the same
manner, and in the same circumstances, as do the series of the Trust. As with
the Trust, the investors in one or more subtrusts of the Portfolio Trust could
control the outcome of these votes. No subtrust of the Portfolio Trust has any
preference over any other subtrust.
The Trust is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a business trust may,
under certain circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder's incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the Trust itself was unable to meet its
obligations.
The Portfolio Trust was organized as a trust under the laws of the State of New
York. The Portfolio Trust's Declaration of Trust provides that the entities
investing in the Portfolio (e.g., investment companies such as the Fund and
common and commingled trust funds) will each be liable for all obligations of
the Portfolio. However, the risk of the Fund's incurring financial loss on
account of such liability is limited to circumstances in which both inadequate
insurance existed and the Portfolio itself was unable to meet its obligations.
Accordingly, the Trustees of the Trust believe that neither the Fund nor its
shareholders will be adversely affected by reason of the Fund's investing in the
Portfolio.
As of October 30, 1998, Avon Employees Savings & Stock Ownership Plan, Brooklyn,
New York 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>
BT PYRAMID MUTUAL FUNDS BT PRESERVATIONPLUS FUND SERVICE CLASS
INVESTMENT ADVISER OF THE PORTFOLIO AND ADMINISTRATOR
BANKERS TRUST COMPANY
130 Liberty Street
(One Bankers Trust Plaza)
New York, New York 10006
DISTRIBUTOR
ICC DISTRIBUTORS, INC.
Two Portland Square,
Portland, ME 04101
CUSTODIAN AND TRANSFER AGENT
BANKERS TRUST COMPANY
130 Liberty Street
(One Bankers Trust Plaza)
New York, New York 10006
INDEPENDENT AUDITORS
ERNST & YOUNG LLP
Two Commerce Square,
2001 Market Street,
Philadelphia, Pennsylvania 19103
COUNSEL WILLKIE FARR & GALLAGHER 787 Seventh Avenue, New York, NY 10019
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus, the SAI or the
Fund's official sales literature in connection with the offering of the Shares
and, if given or made, such other information or representations must not be
relied on as having been authorized by the Fund. This Prospectus does not
constitute an offer in any state in which, or to any person to whom, such offer
may not lawfully be made.
Cusip #055847834
STA508300 (11/98)
PART C OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS:
Incorporated herein by reference to the Annual Report to
shareholders of the Fund dated September 30, 1998, pursuant to Rule
411 under the Securities Act of 1933 (File Nos. 33-45973 and
811-6576).
(b) EXHIBITS:
(l) (i) Declaration of Trust of the Trust; 5 (ii) Second Amended and
Restated Designation of Series; 5 (iii) Third Amended and Restated
Designation of Series; 5
(iv) Fourth Amended and Restated Establishment and
Designation of Series; 5
(v) Fifth Amended and Restated Establishment and
Designation of Series; 5
(vi) Sixth Amended and Restated Establishment and
Designation of Series; 6
(vii) Seventh Amended and Restated Establishment and
Designation of Series; 6
(viii) Eighth Amended and Restated Establishment and
Designation of Series; 8
(2) By-Laws of the Trust; 5
(3) Not Applicable
(4) Not Applicable
(5) (i) Conformed Copy of Investment Advisory Agreement; 8
(ii) Copy of Exhibit A to Investment Advisory Agreement; 8
(6) Conformed Copy of Distribution Agreement; +
(7) Not Applicable
- -----------------------------------
+ All exhibits have been filed electronically.
5. Incorporated by reference to Post-Effective Amendment No. 5 to Registrant's
Registration Statement as filed with the Commission on July 31, 1995.
6. Incorporated by reference to Post-Effective Amendment No. 11 to
Registrant's Registration Statement as filed with the Commission on
September 27, 1996.
8. Incorporated by reference to Post-Effective Amendment No. 14 to
Registrant's Registration Statement as filed with the Commission on
February 25, 1997.
<PAGE>
(8) (i) Conformed copy of Custodian Agreement between the
Registrant and Bankers Trust Company; 11
(ii) Conformed copy of Amendment #1 to Exhibit A to the Custodian
Agreement between the Registrant and Bankers
Trust Company; 12
(iii) Conformed copy of Cash Services Agreement between the
Registrant and Bankers Trust Company; 13
(9) Administration and Services Agreement; 3
(i) Exhibit D to the Administration and Services
Agreement; +
(ii) Conformed Copy of Amended and Restated Shareholder
Services Plan for BT PreservationPlus Fund; + (iii) Conformed
copy of Agreement to Provide Shareholder
Services for BT PreservationPlus Fund; +
(10) Conformed Copy of Opinion and Consent of Kirkpatrick &
Lockhart LLP, with respect to BT PreservationPlus Fund,
formerly BT RetirementPlus Fund; 8
(11) Conformed copy of Consent of Independent Accountants; + (12) Not
Applicable
(13) Investment representation letters of initial shareholders of
the Trust; 1
(14) Not Applicable
(15) Not Applicable
(16) Schedule for computation of Fund Performance; 1
(17) (i) Copy of Financial Data Schedule; +
(18) (i) Multiple Class Expense Allocation Plan Adopted
Pursuant of Rule 18f-3; 8
(ii) Revised Multiple Class Expense Allocation Plan Adopted
Pursuant to Rule 18f-3; 12
(19) Conformed copies of Power of Attorney of Registrant 9
- -----------------------------------
+ All exhibits have been filed electronically.
1. Incorporated by reference herein to Pre-Effective Amendment No. 1 to
Registrant's Registration Statement as filed with the Commission on June 9,
1992.
3. Incorporated by reference to Post-Effective Amendment No. 3 to Registrant's
Registration Statement as filed with the Commission on April 30, 1993.
8. Incorporated by reference to Post-Effective Amendment No. 14 to
Registrant's Registration Statement as filed with the Commission on
February 25, 1997.
9. Incorporated by reference to Post-Effective Amendment No. 15 to
Registrant's Registration Statement as filed with the Commission on March
17, 1997.
10. Incorporated by reference to Post-Effective Amendment No. 17 to
Registrant's Registration Statement as filed with the Commission on June
26, 1997.
11. Incorporated by reference to Post-Effective Amendment No. 18 to
Registrant's Registration Statement as filed with the Commission July 1,
1997.
12. Incorporated by reference to Post-Effective Amendment No. 19 to
Registrant's Registration Statement as filed with the Commission on January
28, 1998.
13. Incorporated by reference to Post-Effective Amendment No. 21 to
Registrant's Registration Statement as filed with the Commission on June
30, 1998.
<PAGE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT:
Not Applicable
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
TITLE OF CLASS Number of Record Holders
AS OF NOVEMBER 9, 1998
BT Investment Money Market Fund 495
BT Investment Equity 500 Index Fund 2,406
BT Institutional Asset Management Fund 33
BT Investment Equity Appreciation Fund
Advisor Class 0
Investment Class 16
BT PreservationPlus Fund
Investment Class Shares 5
Institutional Class Shares 12
Service Class 3
Institutional Service Class 3
ITEM 27. INDEMNIFICATION; 8
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER:
Bankers Trust serves as investment adviser to the Fund's Portfolio. Bankers
Trust, a New York banking corporation, is a wholly owned subsidiary of Bankers
Trust Corporation. Bankers Trust conducts a variety of commercial banking and
trust activities and is a major wholesale supplier of financial services to the
international institutional market. To the knowledge of the Trust, none of the
directors or officers of Bankers Trust, except those set forth below, is or has
been at anytime during the past two fiscal years engaged in any other business,
profession, vocation or employment of a substantial nature, except that certain
directors and officers also hold various positions with and engage in business
for Bankers Trust Corporation. Set forth below are the names and principal
businesses of the directors and officers of Bankers Trust who are or during the
past two fiscal years have been engaged in any other business, profession,
vocation or employment of a substantial nature. These persons may be contacted
c/o Bankers Trust Company, 130 Liberty Street, New York, New York 10006.
- -----------------------------------
+ All exhibits have been filed electronically.
8. Incorporated by reference to Post-Effective Amendment No. 14 to
Registrant's Registration Statement as filed with the Commission on
February 25, 1997.
<PAGE>
George B. Beitzel, International Business Machines Corporation, Old Orchard
Road, Armonk, NY 10504. Director, Bankers Trust Company; Retired Senior Vice
President and Director, International Business Machines Corporation; Director,
Computer Task Group; Director, Phillips Petroleum Company; Director, Caliber
Systems, Inc. (formerly, Roadway Services Inc.); Director, Rohm and Haas
Company; Director, TIG Holdings; Chairman Emeritus of Amherst College; and
Chairman of the Colonial Willimsburg Foundation.
Richard H. Daniel, Bankers Trust Company, 130 Liberty Street, New York, New York
10006. Vice Chairman and Chief Financial Officer, Bankers Trust Company and
Bankers Trust Corporation; Beneficial owner, General Partner, Daniel Brothers,
Daniel Lingo & Assoc., Daniel Pelt & Assoc.; Beneficial owner, Rhea C. Daniel
Trust.
Philip A. Griffiths, Bankers Trust Company, 130 Liberty Street, New York, New
York 10006. Director, Institute for Advanced Study; Director, Bankers Trust
Company; Chairman, Committee on Science, Engineering and Public Policy of the
National Academies of Sciences and Engineering & the Institute of Medicine;
Chairman and member, Nominations Committee and Committee on Science and
Engineering Indicators, National Science Board; and Trustee, North Carolina
School of Science and Mathematics and the Woodward Academy.
William R. Howell, J.C. Penney Company, Inc., P.O. Box 10001, Plano, TX
75301-0001. Chairman Emeritus, J.C. Penney Company, Inc.; Director, Bankers
Trust Company; Director, Exxon Corporation; Director, Halliburton Company;
Director, Warner-Lambert Corporation; Director, The Williams Companies, Inc.;
and Director, National Retail Federation.
Vernon E. Jordan, Jr., Akin, Gump, Strauss, Hauer & Feld, LLP, 1333 New
Hampshire Ave., N.W., Washington, DC 20036. Senior Partner, Akin, Gump, Strauss,
Hauer & Feld, LLP; Director, Bankers Trust Company; Director, American Express
Company; Director, Dow-Jones, Inc.; Director, J.C. Penney Company, Inc.;
Director, Revlon Group Incorporated; Director, Ryder System, Inc.; Director,
Sara Lee Corporation; Director, Union Carbide Corporation; Director, Xerox
Corporation; Trustee, Brookings Institution; Trustee, The Ford Foundation; and
Trustee, Howard University.
David Marshall, 130 Liberty Street, New York, New York 10006. Chief
Information Officer and Executive Vice President, Bankers Trust Corporation;
Senior Managing Director, Bankers Trust Company.
Hamish Maxwell, Philip Morris Companies Inc., 120 Park Avenue, New York, NY
10006. Retired Chairman and Chief Executive Officer, Philip Morris Companies
Inc.; Director, Bankers Trust Company; Director, The News Corporation Limited;
Director, Sola International Inc.; and Chairman, WWP Group plc.
Frank N. Newman, Bankers Trust Company, 130 Liberty Street, New York, New York
10006. Chairman of the Board, Chief Executive Officer and President, Bankers
Trust Corporation and Bankers Trust Company; Director, Bankers Trust Company;
Director, Dow-Jones, Inc.; and Director, Carnegie Hall.
N.J. Nicholas Jr., 745 Fifth Avenue, New York, NY 10020. Director, Bankers
Trust Company; Director, Boston Scientific Corporation; and Director, Xerox
Corporation.
Russell E. Palmer, The Palmer Group, 3600 Market Street, Suite 530,
Philadelphia, PA 19104. Chairman and Chief Executive Officer of The Palmer
Group; Director, Bankers Trust Company; Director, Allied-Signal Inc.; Director,
Federal Home Loan Mortgage Corporation; Director, GTE Corporation; Director, The
May Department Stores Company; Director, Safeguard Scientifics, Inc.; and
Trustee, University of Pennsylvania.
Donald L. Staheli, Bankers Trust Company, 130 Liberty Street, New York, New York
10006. Chairman of the Board and Chief Executive Officer, Continental Grain
Company; Director, Bankers Trust Company; Director, ContiFinancial Corporation;
Director, Prudential Life Insurance Company of America; Director, Fresenius
Medical Care, A.g.; Director, America-China Society; Director, National
Committee on United States-China Relations; Director, New York City Partnership;
Chairman, U.S.-China Business Council; Chairman, Council on Foreign Relations;
Chairman, National Advisor Council of Brigham Young University's Marriott School
of Management; Vice Chairman, The Points of Light Foundation; and Trustee,
American Graduate School of International Management.
Patricia Carry Stewart, c/o Office of the Secretary, 130 Liberty Street, New
York, NY 10006. Director, Bankers Trust Company; Director, CVS Corporation;
Director, Community Foundation for Palm Beach and Martin Counties; Trustee
Emerita, Cornell University.
George J. Vojta, Bankers Trust Company, 130 Liberty Street, New York, NY 10006.
Vice Chairman, Bankers Trust Corporation and Bankers Trust Company; Director,
Bankers Trust Company; Director; Alicorp S.A.; Director; Northwest Airlines;
Director, Private Export Funding Corp.; Director, New York State Banking Board;
Director, St. Lukes-Roosevelt Hospital Center; Partner, New York City
Partnership; and Chairman, Wharton Financial Services Center.
Paul A. Volcker, Bankers Trust Company, 130 Liberty Street, New York, New York
10006. Director, Bankers Trust Company; Director, American Stock Exchange;
Director, Nestle S.A.; Director, Prudential Insurance Company; Director, UAL
Corporation; Chairman, Group of 30; North American Chairman, Trilateral
Commission; Co-Chairman, Bretton Woods Committee; Co-Chairman, U.S./Hong Kong
Economic Cooperation Committee; Director, American Council on Germany; Director,
Aspen Institute; Director, Council on Foreign Relations; Director, The Japan
Society; and Trustee, The American Assembly.
Melvin A. Yellin, Bankers Trust Company, 130 Liberty Street, New York, New York
10006. Senior Managing Director and General Counsel of Bankers Trust Corporation
and Bankers Trust Company; Director, 1136 Tenants Corporation; and Director, ABA
Securities Association.
ITEM 29. PRINCIPAL UNDERWRITERS:
(a)ICC Distributors, Inc., the Distributor for shares of the Registrant,
also acts as principal underwriter for the following open-end
investment companies: BT Advisor Funds, BT Institutional Funds, and BT
Investment Funds.
<PAGE>
(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT
John Y. Keffer ......President
Two Portland Square
Portland, ME 04101
Sara M. Morris ......Treasurer
Two Portland Square
Portland, ME 04101
David I. Goldstein ......Secretary
Two Portland Square
Portland, ME 04101
Benjamin L. Niles ......Vice President
Two Portland Square
Portland, ME 04101
Margaret J. Fenderson ......Assistant Treasurer
Two Portland Square
Portland, ME 04101
Dana L. Lukens ......Assistant Secretary
Two Portland Square
Portland, ME 04101
Nanette K. Chern ......Chief Compliance Officer
Two Portland Square
Portland, ME 04101
(c) None
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS:
BT Pyramid Mutual Funds: ......5800 Corporate Drive
(Registrant) Pittsburgh, PA 15237-7010
Bankers Trust Company: ......130 Liberty Street
(Custodian, Investment Adviser New York, NY 10006
and Administrator)
Investors Fiduciary Trust Company: .127 West 10th Street,
(Transfer Agent and Dividend ......Kansas City, MO 64105.
Disbursing Agent)
ICC Distributors, Inc.: ......Two Portland Square
(Distributor) ......Portland, ME 04101
<PAGE>
ITEM 31. MANAGEMENT SERVICES:
Not Applicable
ITEM 32. UNDERTAKINGS
The Registrant undertakes to comply with Section 16(c) of the 1940 Act as
though such provisions of the Act were applicable to the Registrant except that
the request referred to in the third full paragraph thereof may only be made by
shareholders who hold in the aggregate at least 10% of the outstanding shares of
the ...Registrant, regardless of the net asset value or values of shares held by
such requesting shareholders.
If the information called for by Item 5A of Form N-lA is contained in the
latest annual report to shareholders, the Registrant shall furnish each person
to whom a prospectus is delivered with a copy of the Registrant's latest annual
report to shareholders upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, the Registrant, BT PYRAMID MUTUAL FUNDS
certifies that it meets all of the requirements for effectiveness of this
Amendment to its registration Statement pursuant to Rule 485(b) under the
Securities act of 1933, and has duly caused this Amendment to its Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Pittsburgh and the Commonwealth of Pennsylvania on
the 23rd day of November, 1998.
BT PYRAMID MUTUAL FUNDS
By: /s/ Jay S. Neuman
Jay S. Neuman, Secretary
November 23, 1998
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to its Registration Statement has been signed below by the following person in
the capacity and on the date indicated:
NAME TITLE. DATE
By: /s/ Jay S. Neuman Attorney in Fact November 23, 1998
Jay S. Neuman For the Persons
SECRETARY Listed Below
/s/RONALD M. PETNUCH* President and Treasurer
Ronald M. Petnuch (Chief Executive Officer,
Principal Financial and Accounting
Officer)
/s/HARRY VAN BENSCHOTEN* Trustee
Harry Van Benschoten
/s/MARTIN J. GRUBER* Trustee
Martin J. Gruber
/s/ KELVIN J. LANCASTER* Trustee
Kelvin J. Lancaster
* By Power of Attorney
<PAGE>
BT PRESERVATIONPLUS PORTFOLIO has duly caused this Post-Effective
amendment No. 22 to the Registration Statement on Form N-1A of BT Pyramid Mutual
Funds to be signed on its behalf by the undersigned thereto authorized in the
City of Pittsburgh and the Commonwealth of Pennsylvania on the 23rd day of
November, 1998.
BT PRESERVATIONPLUS PORTFOLIO
By: /s/ Jay S. Neuman
Jay S. Neuman, Secretary
November 23, 1998
This Post-Effective amendment No. 22 to the Registration Statement has been
signed below by the following persons in the capacity and on the date indicated:
NAME TITLE. DATE
By: /s/ Jay S. Neuman Attorney in Fact November 23, 1998
Jay S. Neuman For the Persons
SECRETARY Listed Below
/s/RONALD M. PETNUCH* President and Treasurer
Ronald M. Petnuch (Chief Executive Officer,
Principal Financial and Accounting
Officer)
/s/CHARLES P. BIGGAR* Trustee
Charles P. Biggar
/s/S. LELAND DILL* Trustee
S. Leland Dill
/s/PHILIP SAUNDERS, JR.* Trustee
Philip Saunders, Jr.
* By Power of Attorney
Exhibit 6 under Form N-1A
Exhibit 1 under Item 601/Reg. S-K
BT PYRAMID MUTUAL FUNDS
DISTRIBUTION AGREEMENT
AGREEMENT made as of the 11th day of August, 1998, by and between BT
Pyramid Mutual Funds, a Massachusetts business trust, with its principal office
and place of business at 130 Liberty Street (One Bankers Trust Plaza), New York,
NY 10006 (the "Trust"), and ICC Distributors, Inc., a Delaware corporation with
its principal office and place of business at Two Portland Square, Portland,
Maine 04101 (the "Distributor").
WHEREAS, the Trust is registered under the Investment Company Act of 1940,
as amended (the "1940 Act"), as an open-end management investment company, may
issue its shares of beneficial interest (the "Shares") in separate series and
classes and continuously offers for sale its Shares to the public; and
WHEREAS, the Distributor is registered under the Securities Exchange Act
of 1934, as amended ("1934 Act"), as a broker-dealer and is engaged in the
business of selling shares of registered investment companies either directly to
purchasers or through other securities dealers;
WHEREAS, the Trust offers Shares in one or more series as listed in
Appendix A hereto (each such series, together with all other series subsequently
established by the Trust and made subject to this Agreement in accordance with
Section 16 hereof, being herein referred to as a "Series," and collectively as
the "Series") and the Trust offers shares of one or more classes (each such
class together with all other classes subsequently established by a Series being
herein referred to as a "Class," and collectively as the "Classes");
WHEREAS, the Trust desires that the Distributor offer the Shares of each
Series and Class thereof to the public and the Distributor is willing to provide
those services on the terms and conditions set forth in this Agreement in order
to promote the growth of the Trust and facilitate the distribution of the
Shares;
NOW THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein, the Trust and the Distributor hereby agree as
follows:
SECTION 1. DELIVERY OF DOCUMENTS AND APPOINTMENT
(a) The Trust has delivered to the Distributor properly certified or
authenticated copies of its Declaration of Trust and Bylaws (collectively, as
amended from time to time, "Organic Documents"), the Trust's Notification of
Registration filed with the U.S. Securities and Exchange Commission ("SEC")
pursuant to Section 8(a) of the 1940 Act on Form N-8A under the 1940 Act, the
Trust's Registration Statement and all amendments thereto filed with the SEC
pursuant to the Securities Act of 1933, as amended (the "Securities Act"), or
the 1940 Act (the "Registration Statement") and its current Prospectuses and
Statements of Additional Information (collectively, as currently in effect and
as amended or supplemented, the "Prospectus") and shall promptly furnish the
Distributor with all amendments of or supplements to the foregoing, each
properly certified or authenticated. In addition, the Trust shall furnish the
Distributor with properly certified or authenticated copies of all documents,
notices and reports filed with the SEC.
(b) The Trust has delivered to the Distributor certified copies of the
resolutions of the Board of Trustees (the "Board") authorizing the appointment
of the Distributor as distributor and approving this Agreement.
(b) The Trust hereby appoints the Distributor as its principal underwriter
and distributor to sell its Shares to the public and hereby agrees during the
term of this Agreement to sell its Shares to the Distributor upon the terms and
conditions herein set forth.
SECTION 2. EXCLUSIVE NATURE OF DUTIES
The Distributor shall be the exclusive representative of the Trust to act
as its principal underwriter and distributor except that the rights given under
this Agreement to the Distributor shall not apply to Shares issued in connection
with the merger, consolidation or reorganization of any other investment company
with the Trust; the Trust's acquisition by purchase or otherwise of all or
substantially all of the assets or stock of any other investment company; or the
reinvestment in Shares by the Trust's shareholders of dividends or other
distributions or any other offering by the Trust of securities to its
shareholders.
SECTION 3. PURCHASE OF SHARES; OFFERING OF SHARES
(a) The Distributor shall have the right to buy from the Trust the Shares
needed to fill unconditional orders for unsold Shares of the Trust as shall then
be effectively registered under the Securities Act placed with the Distributor
by investors or securities dealers or depository institutions or other financial
intermediaries acting as agent for their customers or on their own behalf.
Alternatively, the Distributor may act as the Trust's agent, to offer, and to
solicit offers to subscribe to, unsold Shares of the Trust as shall then be
effectively registered under the Securities Act. The Distributor will promptly
forward all orders and subscriptions for Shares of the Trust. The price which
the Distributor shall pay for Shares purchased by it from the Trust shall be the
net asset value, determined as set forth in Section 3(c) hereof, used in
determining the public offering price on which the orders are based. The price
at which the Distributor shall offer and sell Shares to investors shall be the
public offering price, as set forth in Section 3(b) hereof. The Distributor may
sell Shares to securities dealers, depository institutions or other financial
intermediaries acting as agent for their customers that have entered into
agreements with the Distributor pursuant to Section 9 hereof or acting on their
own behalf. The Trust reserves the right to sell its Shares directly to
investors through subscriptions received by the Trust, but no such direct sales
shall affect the sales charges due to the Distributor hereunder.
(b) The public offering price of the Shares of the Trust, i.e., the price
per Share at which the Distributor or selected dealers or selected agents (each
as defined in Section 11 hereof) may sell Shares to the public or to those
persons eligible to invest in Shares as described in the Trust's Prospectus,
shall be the public offering price determined in accordance with the then
currently effective Prospectus of the Trust or Class thereof under the
Securities Act, relating to such Shares, but not to exceed the net asset value
at which the Distributor, when acting as principal, is to purchase such Shares,
plus, in the case of Shares for which an initial sales charge is assessed, an
initial charge equal to a specified percentage or percentages of the public
offering price of the Shares as set forth in the current Prospectus relating to
the Shares. In the case of Shares for which an initial sales charge may be
assessed, Shares may be sold to certain classes of persons at reduced sales
charges or without any sales charge as from time to time set forth in the
current Prospectus relating to the Shares. The Trust will advise the Distributor
of the net asset value per Share at each time as the net asset value per Share
shall have been determined by the Trust.
(c) The net asset value per Share of each Series or Class thereof shall be
determined by the Trust, or an agent of the Trust, as of the close of The New
York Stock Exchange, Inc. ("NYSE") or such other time as set forth in the
applicable Prospectus on the Trust business day in accordance with the method
set forth in the Prospectus and guidelines established by the Board.
(d) The Trust reserves the right to suspend the offering of Shares of any
Class at any time in the absolute discretion of the Board, and upon notice of
such suspension the Distributor shall cease to offer Shares of the Trust or
Classes thereof specified in the notice.
(e) The Trust, or any agent of the Trust designated in writing to the
Distributor by the Trust, shall be promptly advised by the Distributor of all
purchase orders for Shares received by the Distributor and all subscriptions for
Shares obtained by the Distributor as agent shall be directed to the Trust for
acceptance and shall not be binding until accepted by the Trust. Any order or
subscription may be rejected by the Trust; provided, however, that the Trust
will not arbitrarily or without reasonable cause refuse to accept or confirm
orders or subscriptions for the purchase of Shares. The Trust (or its agent)
will confirm orders and subscriptions upon their receipt, will make appropriate
book entries and, upon receipt by the Trust (or its agent) of payment thereof,
will issue such Shares in uncertificated or uncertificated (if permitted) form
pursuant to the instructions of the Distributor. The Distributor agrees to cause
such payment and such instructions to be delivered promptly to the Trust (or its
agent).
SECTION 4. REPURCHASE OR REDEMPTION OF SHARES
(a) Any of the outstanding Shares of the Trust may be tendered for
redemption at any time, and the Trust agrees to redeem or repurchase the Shares
so tendered in accordance with its obligations as set forth in the Trust's
Organic Documents and the Prospectus relating to the Shares. The price to be
paid to redeem or repurchase the Shares of the Trust shall be equal to the net
asset value calculated in accordance with the provisions of Section 3(c) hereof
less, in the case of Shares for which a deferred sales charge is assessed, a
deferred sales charge equal to a specified percentage or percentages of the net
asset value of those Shares as from time to time set forth in the Prospectus
relating to those Shares or their cost, whichever is less. Shares for which a
deferred sales charge may be assessed and that have been outstanding for a
specified period of time may be redeemed without payment of a deferred sales
charge as from time to time set forth in the Prospectus relating to those
Shares.
(b) The Trust or its designated agent shall pay (i) the total amount of
the redemption price consisting of the redemption price less any applicable
deferred sales charge to the redeeming shareholder or its agent and (ii) except
as may be otherwise required by the Conduct Rules (the "Rules") of the National
Association of Securities Dealers, Inc. (the "NASD") and any interpretations
thereof, any applicable deferred sales charges to the Distributor in accordance
with the Distributor's instructions on or before the third business day
subsequent to each calendar month-end.
(c) Redemption of Shares or payment therefor may be suspended at times
when the NYSE is closed for any reason other than its customary weekend or
holiday closings, when trading thereon is restricted, when an emergency exists
as a result of which disposal by the Trust of securities owned by the Trust is
not reasonably practicable or it is not reasonably practicable for the Trust
fairly to determine the value of its net assets, or during any other period when
the SEC so permits.
SECTION 5. DUTIES AND REPRESENTATIONS OF THE DISTRIBUTOR
(a) The Distributor shall use reasonable efforts to sell Shares of the
Trust upon the terms and conditions contained herein and in the then current
Prospectus. The Distributor shall devote reasonable time and effort to effect
sales of Shares but shall not be obligated to sell any specific number of
Shares. The services of the Distributor to the Trust hereunder are not to be
deemed exclusive, and nothing herein contained shall prevent the Distributor
from entering into like arrangements with other investment companies so long as
the performance of its obligations hereunder is not impaired thereby.
(b) In selling Shares of the Trust, the Distributor shall comply with the
requirements of all federal and state laws relating to the sale of the Shares.
None of the Distributor, any selected dealer, any selected agent or any other
person is authorized by the Trust to give any information or to make any
representations other than as is contained in the Trust's Prospectus or any
advertising materials or sales literature specifically approved in writing by
the Trust or its agents.
(c) The Distributor shall adopt and follow procedures for the confirmation
of sales to investors and selected dealers or selected agents, the collection of
amounts payable by investors and selected dealers or selected agents on such
sales, and the cancellation of unsettled transactions, as may be necessary to
comply with the requirements of the NASD and any other applicable
self-regulatory organization.
(d) The Distributor will perform its duties hereunder under the
supervision of and in accordance with the directives of the Board. The
Distributor will perform its duties hereunder in accordance with the Trust's
Organic Documents and Prospectuses and with the instructions and directions of
the Board and will conform to and comply with the requirements of the 1940 Act,
the Securities Act and other applicable laws.
(e) The Distributor shall provide the Board with a written report of the
amounts expended in connection with this Agreement as requested by the Board.
(f) The Distributor shall be responsible for reviewing and making any
filings of advertisements ands sales literature relating to the Trust that have
been furnished to the Distributor.
(g) The Distributor represents and warrants to the Trust that:
(i) It is a corporation duly organized and existing and in good standing
under the laws of the State of Delaware and it is duly qualified to carry
on its business in the State of Maine;
(ii) It is empowered under applicable laws and by its Articles of
Incorporation to enter into and perform this Agreement;
(iii) All requisite corporate proceedings have been taken to authorize it
to enter into and perform this Agreement;
(iv) It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under this
Agreement;
(v) This Agreement, when executed and delivered, will constitute a legal,
valid and binding obligation of the Distributor, enforceable against the
Distributor in accordance with its terms, subject to bankruptcy,
insolvency, reorganization, moratorium and other laws of general
application affecting the rights and remedies of creditors and secured
parties;
(vi) It is registered under the 1934 Act with the SEC as a broker-dealer,
it is a member in good standing of the NASD, it will abide by the rules
and regulations of the NASD, and it will notify the Trust if its
membership in the NASD is terminated or suspended; and
(vii) The performance by the Distributor of its obligations hereunder does
not and will not contravene any provision of its Articles of
Incorporation.
(h) Notwithstanding anything in this Agreement, including the Appendices,
to the contrary, the Distributor makes no warranty or representation as to the
number of selected dealers or selected agents with which it has entered into
agreements in accordance with Section 11 hereof, as to the availability of any
Shares to be sold through any selected dealer, selected agent or other
intermediary or as to any other matter not specifically set forth herein.
SECTION 6. DUTIES AND REPRESENTATIONS OF THE FUND
(a) The Trust shall furnish to the Distributor copies of all financial
statements and other documents to be delivered to shareholders or investors at
least two Trust business days prior to such delivery and shall furnish the
Distributor copies of all other financial statements, documents and other papers
or information which the Distributor may reasonably request for use in
connection with the distribution of Shares. The Trust shall make available to
the Distributor the number of copies of its Prospectuses as the Distributor
shall reasonably request.
(b) The Trust shall take, from time to time, subject to the approval of
its Board and any required approval of its shareholders, all action necessary to
fix the number of authorized Shares (if such number is not limited) and to
register the Shares under the Securities Act, to the end that there will be
available for sale the number of Shares as reasonably may be expected to be sold
pursuant to this Agreement.
(c) The Trust shall register or qualify its Shares for sale under the
securities laws of the various states of the United States and other
jurisdictions ("States") as the Trust, in its sole discretion shall determine.
Any registration or qualification may be withheld, terminated or withdrawn by
the Trust at any time in its discretion. The Distributor shall furnish such
information and other material relating to its affairs and activities as may be
required by the Trust in connection with such registration or qualification.
(d) The Trust represents and warrants to the Distributor that:
(i) It is a business trust duly organized and existing and in good
standing under the laws of the Commonwealth of Massachusetts;
(ii) It is empowered under applicable laws and by its Organic Documents to
enter into and perform this Agreement;
(iii) All proceedings required by the Organic Documents have been taken to
authorize it to enter into and perform its duties under this Agreement;
(iv) It is registered as an open-end management investment company with
the SEC under the 1940 Act;
(v) All Shares, when issued, shall be validly issued, fully paid and
non-assessable;
(vi) This Agreement, when executed and delivered, will constitute a legal,
valid and binding obligation of the Trust, enforceable against the Trust
in accordance with its terms, subject to bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
the rights and remedies of creditors and secured parties;
(vii) The performance by the Trust of its obligations hereunder does not
and will not contravene any provision of its Declaration of Trust.
(viii) The Trust's Registration Statement is currently effective and will
remain effective with respect to all Shares of the Trust's Series and
Classes thereof being offered for sale;
(ix) It will use its best efforts to ensure that its Registration
Statement and Prospectuses have been or will be, as the case may be,
carefully prepared in conformity with the requirements of the Securities
Act and the rules and regulations thereunder;
(x) It will use its best efforts to ensure that (A) its Registration
Statement and Prospectuses contain or will contain all statements required
to be stated therein in accordance with the Securities Act and the rules
and regulations thereunder, (B) all statements of fact contained or to be
contained in the Registration Statement or Prospectuses are or will be
true and correct at the time indicated or on the effective date as the
case may be and (C) neither the Registration Statement nor any Prospectus,
when they shall become effective or be authorized for use, will include an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading to a purchaser of Shares;
(xi) It will from time to time file such amendment or amendments to its
Registration Statement and Prospectuses as, in the light of then-current
and then-prospective developments, shall, in the opinion of its counsel,
be necessary in order to have the Registration Statement and Prospectuses
at all times contain all material facts required to be stated therein or
necessary to make any statements therein not misleading to a purchaser of
Shares ("Required Amendments");
(xii) It shall not file any amendment to its Registration Statement or
Prospectuses without giving the Distributor reasonable advance notice
thereof (which shall be at least three Trust business days); provided,
however, that nothing contained in this Agreement shall in any way limit
the Trust's right to file at any time such amendments to its Registration
Statement or Prospectuses, of whatever character, as the Trust may deem
advisable, such right being in all respects absolute and unconditional;
and
(xiii) It will use its best efforts to ensure that (A) any amendment to
its Registration Statement or Prospectuses hereafter filed will, when it
becomes effective, contain all statements required to be stated therein in
accordance with the 1940 Act and the rules and regulations thereunder, (B)
all statements of fact contained in the Registration Statement or
Prospectuses will, when it becomes effective, be true and correct at the
time indicated or on the effective date as the case may be and (C) no such
amendment, when it becomes effective, will include an untrue statement of
a material fact or will omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading
to a purchaser of the Shares.
SECTION 7. STANDARD OF CARE
(a) The Distributor shall use its best judgment and efforts in rendering
services to the Trust under this Agreement but shall be under no duty to take
any action except as specifically set forth herein or as may be specifically
agreed to by the Distributor in writing. The Distributor shall not be liable to
the Trust or any of the Trust's shareholders for any error of judgment or
mistake of law, for any loss arising out of any investment, or for any action or
inaction of the Distributor in the absence of bad faith, willful misfeasance or
gross negligence in the performance of the Distributor's duties or obligations
under this Agreement or by reason of the Distributor's reckless disregard of its
duties and obligations under this Agreement
(b) The Distributor shall not be liable to the Trust for any action taken
or failure to act in good faith reliance upon:
(i) the advice of the Trust or of counsel, who may be counsel to the
Trust or counsel to the Distributor;
(ii) any oral instruction which the Distributor receives and which it
reasonably believes in good faith was transmitted by the person or persons
authorized by the Board to give such oral instruction (the Distributor
shall have no duty or obligation to make any inquiry or effort of
certification of such oral instruction);
(iii) any written instruction or certified copy of any resolution of the
Board, and the Distributor may rely upon the genuineness of any such
document or copy thereof reasonably believed in good faith by the
Distributor to have been validly executed; or
(iv) any signature, instruction, request, letter of transmittal,
certificate, opinion of counsel, statement, instrument, report, notice,
consent, order, or other document reasonably believed in good faith by the
Distributor to be genuine and to have been signed or presented by the
Trust or other proper party or parties;
and the Distributor shall not be under any duty or obligation to inquire into
the validity or invalidity or authority or lack thereof of any statement, oral
or written instruction, resolution, signature, request, letter of transmittal,
certificate, opinion of counsel, instrument, report, notice, consent, order, or
any other document or instrument which the Distributor reasonably believes in
good faith to be genuine.
(c) The Distributor shall not be responsible or liable for any failure or
delay in performance of its obligations under this Agreement arising out of or
caused, directly or indirectly, by circumstances beyond its reasonable control
including, without limitation, acts of civil or military authority, national
emergencies, labor difficulties (other than those related to the Distributor's
employees), fire, mechanical breakdowns, flood or catastrophe, acts of God,
insurrection, war, riots or failure of the mails, transportation, communication
or power supply. In addition, to the extent the Distributor's obligations
hereunder are to oversee or monitor the activities of third parties, the
Distributor shall not be liable for any failure or delay in the performance of
the Distributor's duties caused, directly or indirectly, by the failure or delay
of such third parties in performing their respective duties or cooperating
reasonably and in a timely manner with the Distributor.
SECTION 8. INDEMNIFICATION
(a) The Trust will indemnify, defend and hold the Distributor, its
employees, agents, directors and officers and any person who controls the
Distributor within the meaning of Section 15 of the Securities Act or Section 20
of the 1934 Act ("Distributor Indemnitees") free and harmless from and against
any and all claims, demands, actions, suits, judgments, liabilities, losses,
damages, costs, charges, reasonable counsel fees and other expenses of every
nature and character (including the cost of investigating or defending such
claims, demands, actions, suits or liabilities and any reasonable counsel fees
incurred in connection therewith) which any Distributor Indemnitee may incur,
under the Securities Act, under the securities laws of the various States or
under common law or otherwise, arising out of or based upon any alleged untrue
statement of a material fact contained in the Trust's Registration Statement or
Prospectuses, arising out of or based upon any alleged omission to state a
material fact required to be stated in any one thereof or necessary to make the
statements in any one thereof not misleading, or arising out of or based upon
any filing made with the regulatory authorities of any State unless such
statement or omission was made in reliance upon, and in conformity with,
information furnished in writing to the Trust in connection with the preparation
of the Registration Statement, exhibits to the Registration Statement or filings
made with the regulatory authorities of any State by or on behalf of the
Distributor ("Distributor Claims").
After receipt of the Distributor's notice of termination under Section
13(e) of this Agreement, the Trust shall indemnify and hold each Distributor
Indemnitee free and harmless from and against any Distributor Claim; provided,
that the term Distributor Claim for purposes of this sentence shall mean any
Distributor Claim related to the matters for which the Distributor has requested
amendment to the Trust's Registration Statement and for which the Trust has not
filed a Required Amendment, regardless of with respect to such matters whether
any statement in or omission from the Registration Statement was made in
reliance upon, or in conformity with, information furnished to the Trust by or
on behalf of the Distributor.
(b) The Trust may assume the defense of any suit brought to enforce any
Distributor Claim and may retain counsel of good standing chosen by the Trust
and approved by the Distributor, which approval shall not be withheld
unreasonably. The Trust shall advise the Distributor that it will assume the
defense of the suit and retain counsel within ten (10) days of receipt of the
notice of the claim. If the Trust assumes the defense of any such suit and
retains counsel, the defendants shall bear the fees and expenses of any
additional counsel that they retain. If the Trust does not assume the defense of
any such suit, or if Distributor does not approve of counsel chosen by the Trust
or has been advised that it may have available defenses or claims that are not
available to or conflict with those available to the Trust, the Trust will
reimburse any Distributor Indemnitee named as defendant in such suit for the
reasonable fees and expenses of any counsel that person retains. A Distributor
Indemnitee shall not settle or confess any claim without the prior written
consent of the Trust, which consent shall not be unreasonably withheld or
delayed.
(c) The Distributor will indemnify, defend and hold the Trust and its
several officers and trustees (collectively, the "Trust Indemnitees"), free and
harmless from and against any and all claims, demands, actions, suits,
judgments, liabilities, losses, damages, costs, charges, reasonable counsel fees
and other expenses of every nature and character (including the cost of
investigating or defending such claims, demands, actions, suits or liabilities
and any reasonable counsel fees incurred in connection therewith), but only to
the extent that such claims, demands, actions, suits, judgments, liabilities,
losses, damages, costs, charges, reasonable counsel fees and other expenses
result from, arise out of or are based upon:
(i) any alleged untrue statement of a material fact contained in the
Trust's Registration Statement or Prospectus or any alleged omission of a
material fact required to be stated or necessary to make the statements
therein not misleading, if such statement or omission was made in reliance
upon, and in conformity with, information furnished to the Trust in
writing in connection with the preparation of the Registration Statement
or Prospectus by or on behalf of the Distributor; or
(ii) any act of, or omission by, the Distributor or its sales
representatives that does not conform to the standard of care set forth in
Section 7 of this Agreement (collectively, "Trust Claims").
(d) The Distributor may assume the defense of any suit brought to enforce
any Trust Claim and may retain counsel of good standing chosen by the
Distributor and approved by the Trust, which approval shall not be withheld
unreasonably. The Distributor shall advise the Trust that it will assume the
defense of the suit and retain counsel within ten (10) days of receipt of the
notice of the claim. If the Distributor assumes the defense of any such suit and
retains counsel, the defendants shall bear the fees and expenses of any
additional counsel that they retain. If the Distributor does not assume the
defense of any such suit, or if the Trust does not approve of counsel chosen by
the Distributor or has been advised that it may have available defenses or
claims that are not available to or conflict with those available to the
Distributor, the Distributor will reimburse any Trust Indemnitee named as
defendant in such suit for the reasonable fees and expenses of any counsel that
person retains. A Trust Indemnitee shall not settle or confess any claim without
the prior written consent of the Distributor, which consent shall not be
unreasonably withheld or delayed.
(e) The Trust's and the Distributor's obligations to provide
indemnification under this Section is conditioned upon the Trust or the
Distributor receiving notice of any action brought against a Distributor
Indemnitee or Trust Indemnitee, respectively, by the person against whom such
action is brought within twenty (20) days after the summons or other first legal
process is served. Such notice shall refer to the person or persons against whom
the action is brought. The failure to provide such notice shall not relieve the
party entitled to such notice of any liability that it may have to any
Distributor Indemnitee or Trust Indemnitee except to the extent that the ability
of the party entitled to such notice to defend such action has been materially
adversely affected by the failure to provide notice.
(f) The provisions of this Section and the parties' representations and
warranties in this Agreement shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any Distributor
Indemnitee or Trust Indemnitee and shall survive the sale and redemption of any
Shares made pursuant to subscriptions obtained by the Distributor. The
indemnification provisions of this Section will inure exclusively to the benefit
of each person that may be a Distributor Indemnitee or Trust Indemnitee at any
time and their respective successors and assigns (it being intended that such
persons be deemed to be third party beneficiaries under this Agreement).
(g) The Distributor agrees promptly to notify the Trust of the
commencement of any litigation or proceeding of which it becomes aware arising
out of or in any way connected with the issuance or sale of Shares. The Trust
agrees promptly to notify the Distributor of the commencement of any litigation
or proceeding of which it becomes aware arising out of or in any way connected
with the issuance or sale of its Shares.
(h) Nothing contained herein shall require the Trust to take any action
contrary to any provision of its Organic Documents or any applicable statute or
regulation or shall require the Distributor to take any action contrary to any
provision of its Articles of Incorporation or Bylaws or any applicable statute
or regulation; provided, however, that neither the Trust nor the Distributor may
amend their Organic Documents or Articles of Incorporation and Bylaws,
respectively, in any manner that would result in a violation of a representation
or warranty made in this Agreement, except if required by any applicable statute
or regulation.
(i) Nothing contained in this section shall be construed to protect the
Distributor against any liability to the Trust or the security holders of the
Trust to which the Distributor would otherwise be subject by reason of its
failure to satisfy the standard of care set forth in Section 7 of this
Agreement.
SECTION 9. NOTIFICATION TO THE DISTRIBUTOR
The Trust shall advise the Distributor immediately: (i) of any request by
the SEC for amendments to the Trust's Registration Statement or Prospectus or
for additional information; (ii) in the event of the issuance by the SEC of any
stop order suspending the effectiveness of the Trust's Registration Statement or
any Prospectus or the initiation of any proceedings for that purpose; (iii) of
the happening of any material event which makes untrue any statement made in the
Trust's then current Registration Statement or Prospectus or which requires the
making of a change in either thereof in order to make the statements therein not
misleading; and (iv) of all action of the SEC with respect to any amendments to
the Trust's Registration Statement or Prospectus which may from time to time be
filed with the Commission under the 1940 Act or the Securities Act.
SECTION 10. COMPENSATION; EXPENSES
(a) In consideration of the Distributor's services in connection with the
distribution of Shares of the Trust and each Class thereof, the Distributor
shall receive: (i) from the Trust, any applicable contingent deferred sales
charge ("CDSC") assessed upon investors in connection with the redemption of
Shares and (ii) from the Trust, the shareholder service fees with respect to the
Shares of those Classes as designated in Appendix A (the "Service Fee"). The
Service Fee shall be accrued daily by each applicable Trust or Class thereof and
shall be paid monthly as promptly as possible after the last day of each
calendar month but in any event on or before the fifth (5th) Trust business day
after month-end, at the rate or in the amounts set forth in Appendix A.
(b) The Trust shall cause its transfer agent (the "Transfer Agent") to
withhold, from redemption proceeds payable to holders of Shares of the Series
and the Classes thereof, all CDSCs properly payable by the shareholders in
accordance with the terms of the applicable Prospectus and shall cause the
Transfer Agent to pay such amounts over to the Distributor as promptly as
possible after each month end.
(c) Except as specified in Sections 8 and 10(a) of this Agreement, the
Distributor shall be entitled to no compensation or reimbursement of expenses
for the services provided by the Distributor pursuant to this Agreement. The
Distributor may receive compensation from the Trust's investment advisors, other
service providers or their respective affiliates (collectively, the "Advisor")
for its services hereunder or for additional services all as may be agreed to
between the Advisor and the Distributor. Notwithstanding anything in this
Agreement to the contrary, to the extent the Distributor receives compensation
from the Advisor that is disclosed to the Board, the Trust will indemnify,
defend and hold each Distributor Indemnitee free and harmless from and against
any and all claims, demands, actions, suits, judgments, liabilities, losses,
damages, costs, charges, reasonable counsel fees and other expenses of every
nature and character (including the cost of investigating or defending such
claims, demands, actions, suits or liabilities and any reasonable counsel fees
incurred in connection therewith) related in any way to such payment.
(d) The Trust shall be responsible and assumes the obligation for payment
of all its expenses, including fees and disbursements of its counsel and
auditors, in connection with the preparation and filing of the Registration
Statement and Prospectuses (including but not limited to the expense of setting
in type the Registration Statement and Prospectuses and printing sufficient
quantities for internal compliance, regulatory purposes and for distribution to
current shareholders).
(e) The Trust shall bear the cost and expenses (i) of the registration of
its Shares for sale under the Securities Act; (ii) of the registration or
qualification of its Shares for sale under the securities laws of the various
States; (iii) if necessary or advisable in connection therewith, of qualifying
the Trust, or its Series or the Classes thereof (but not the Distributor) as an
issuer or as a broker or dealer, in such States as shall be selected by the
Trust; and (iv) payable to each State for continuing registration or
qualification therein until the Trust decides to discontinue registration or
qualification. The Distributor shall pay all expenses relating to the
Distributor's broker-dealer qualification.
SECTION 11. SELECTED DEALER AND SELECTED AGENT AGREEMENTS
(a) The Distributor shall have the right to enter into sub-distribution
agreements with securities dealers of its choice ("selected dealers") and with
depository institutions and other financial intermediaries of its choice
("selected agents") for the sale of Shares and to fix therein the portion of the
sales charge, if any, that may be allocated to the selected dealers or selected
agents; provided, that all such agreements shall be in substantially the form of
agreement as set forth in Appendix B hereto or such other form as approved by
the Trust. Shares of each Series or Class thereof shall be resold by selected
dealers or selected agents only at the public offering price(s) set forth in the
Prospectus relating to the Shares. The Distributor shall offer and sell Shares
of the Trust only to such selected dealers as are members in good standing of
the NASD. The Distributor shall have the right to enter into shareholder
servicing agreements with financial intermediaries of its choice; provided, that
all such agreements shall be in substantially the form of agreement as approved
by the Trust.
(b) The Distributor will supervise the Trust's relationship with selected
dealers and agents and may make payments to those selected dealers and agents in
such amounts as the Distributor may determine from time to time in its sole
discretion. The amount of payments to selected dealers and agents by the
Distributor may be reviewed by the Board from time to time; provided, however,
that no payment by the Distributor to any selected dealer or agent with respect
to a Share shall exceed the amount of payments made to the Distributor hereunder
with respect to that Share.
SECTION 12. CONFIDENTIALITY
The Distributor agrees to treat all records and other information related
to the Trust as proprietary information of the Trust and, on behalf of itself
and its employees, to keep confidential all such information, except that the
Distributor may:
(i) prepare or assist in the preparation of periodic reports to
shareholders and regulatory bodies such as the SEC;
(ii) provide information typically supplied in the investment company
industry to companies that track or report price, performance or other
information regarding investment companies; and
(iii) release such other information as approved in writing by the Trust,
which approval shall not be unreasonably withheld;
provided, however, that the Distributor may release any information regarding
the Trust without the consent of the Trust if the Distributor reasonably
believes that it may be exposed to civil or criminal legal proceedings for
failure to comply, when requested to release any information by duly constituted
authorities or when so requested by the Trust.
SECTION 13. EFFECTIVENESS, DURATION AND TERMINATION
(a) This Agreement shall become effective with respect to each series or
class listed in Appendix A on August 11, 1998. Upon effectiveness of this
Agreement, it shall supersede all previous agreements between the parties hereto
covering the subject matter hereof insofar as such Agreement may have been
deemed to relate to the Trust.
(b) This Agreement shall continue in effect with respect to a Series Trust
for a period of one year from its effectiveness and thereafter shall continue in
effect with respect to the Series until terminated; provided, that continuance
is specifically approved at least annually (i) by the Board or by a vote of a
majority of the outstanding voting securities of the Trust and (ii) by a vote of
a majority of Trustees of the Trust (I) who are not parties to this Agreement or
interested persons of any such party (other than as Trustees of the Trust) and
(II) with respect to each Class of a Series for which there is an effective
Plan, who do not have any direct or indirect financial interest in any such Plan
applicable to the Class or in any agreements related to the Plan, cast in person
at a meeting called for the purpose of voting on such approval.
(c) This Agreement may be terminated at any time with respect to a Series,
without the payment of any penalty, (i) by the Board or by a vote of a majority
of the outstanding voting securities of the Series or, with respect to each
Class for which there is an effective Plan, a majority of Trustees of the Trust
who do not have any direct or indirect financial interest in any such Plan or in
any agreements related to the Plan, on 60 days' written notice to the
Distributor or (ii) by the Distributor on 60 days' written notice to the Trust.
(d) This Agreement shall automatically terminate upon its assignment and
upon the termination of the Distributor's membership in the NASD.
(e) If the Trust does not file a Required Amendment within fifteen days
following receipt of a written request from the Distributor to do so, the
Distributor may, at its option, terminate this Agreement immediately.
(f) The obligations of Sections 5(e), 6(d), 8, 9 and 10 of this Agreement
shall survive any termination of this Agreement with respect to a Series or
Class thereof.
SECTION 14. NOTICES
Any notice required or permitted to be given hereunder by the Distributor
to the Trust or the Trust to the Distributor shall be deemed sufficiently given
if personally delivered or sent by telegram, facsimile or registered, certified
or overnight mail, postage prepaid, addressed by the party giving such notice to
the other party at the last address furnished by the other party to the party
giving such notice, and unless and until changed pursuant to the foregoing
provisions hereof each such notice shall be addressed to the Trust or the
Distributor, as the case may be, at their respective principal places of
business.
SECTION 15. ACTIVITIES OF THE DISTRIBUTOR
Except to the extent necessary to perform the Distributor's obligations
hereunder, nothing herein shall be deemed to limit or restrict the Distributor's
right, or the right of any of the Distributor's employees, agents, officers or
directors who may also be a director, officer or employee of the Trust, or
affiliated persons of the Trust to engage in any other business or to devote
time and attention to the management or other aspects of any other business,
whether of a similar or dissimilar nature, or to render services of any kind to
any other corporation, trust, firm, individual or association.
SECTION 16. ADDITIONAL FUNDS AND CLASSES
In the event that the Trust establishes one or more series of Shares or
one or more classes of Shares after the effectiveness of this Agreement, such
series of Shares or classes of Shares, as the case may be, shall become Series
and Classes under this Agreement upon approval of this Agreement by the Trust
with respect to the series of Shares or class of Shares and the execution of an
amended Appendix A reflecting the applicable names and terms. The Distributor
may elect not to make any such series or classes subject to this Agreement.
SECTION 17. MISCELLANEOUS
(a) The Distributor shall not be liable to the Trust and the Trust shall
not be liable to the Distributor for consequential damages under any provision
of this Agreement except that Distributor Claims, as that term is used in
Section 8(a) of this Agreement, shall include consequential damages related to,
arising out of or based upon any filing made with the regulatory authorities of
any State.
(b) No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by the
Distributor and the Trust.
(c) This Agreement shall be governed by, and the provisions of this
Agreement shall be construed and interpreted under and in accordance with, the
laws of the State of Maryland.
(d) This Agreement constitutes the entire agreement between the
Distributor and the Trust and supersedes any prior agreement with respect to the
subject matter hereof, whether oral or written.
(e) This Agreement may be executed by the parties hereto on any number of
counterparts, and all of the counterparts taken together shall be deemed to
constitute one and the same instrument.
(f) If any part, term or provision of this Agreement is held to be
illegal, in conflict with any law or otherwise invalid, the remaining portion or
portions shall be considered severable and not be affected, and the rights and
obligations of the parties shall be construed and enforced as if the Agreement
did not contain the particular part, term or provision held to be illegal or
invalid.
(g) Section headings in this Agreement are included for convenience only
and are not to be used to construe or interpret this Agreement.
(h) No affiliated person, employee, agent, officer or director of the
Distributor shall be liable at law or in equity for the Distributor's
obligations under this Agreement.
(i) The Trust shall be liable to the Distributor only with respect to
those Series and Classes of the Trust and the Distributor shall look solely to
the Trust to satisfy any liability of a Series or Class thereof to the
Distributor.
(j) Each of the undersigned warrants and represents that they have full
power and authority to sign this Agreement on behalf of the party indicated and
that their signature will bind the party indicated to the terms hereof.
(k) The terms "vote of a majority of the outstanding voting securities,"
"interested person," "affiliated person" and "assignment" shall have the
meanings ascribed thereto in the 1940 Act.
(l) The Distributor is hereby expressly put on notice of the limitation of
liability as set forth in the Declaration of Trust and agrees that the
obligations assumed by the Trust pursuant to this Agreement shall be limited in
any case to the Trust and its assets and the Distributor shall not seek
satisfaction of any such obligation from the shareholders of the Trust, the
Trustees, officers, employees or agents of the Trust or any of them.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf by and through their duly authorized
officers, as of the day and year first above written.
BT PYRAMID MUTUAL FUNDS
By: /S/ JAY S. NEUMAN
Name: Jay S. Neuman
Secretary
ICC DISTRIBUTORS, INC.
By: /S/ JOHN Y. KEFFER
John Y. Keffer
President
<PAGE>
- A1 -
BT PYRAMID MUTUAL FUNDS
DISTRIBUTION AGREEMENT
APPENDIX A
AS OF AUGUST 11, 1998
- --------------------------------------------------------------------------------
DISTRIBUTION SERVICE
SERIES CLASS FEE FEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BT Investment Money Market Fund None None
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BT Investment Equity 500 Index None None
Fund
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BT Investment Limited Term None None
U.S. Government Securities Fund
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BT Institutional Asset None None
Management Fund
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BT Investment Equity Investment Class None None
Appreciation Fund Advisor Class None None
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BT PreservationPlus Fund Investment Class None None
Service Class None .25%
Institutional Service None .15%
Class Institutional None None
Class None .25%
IRA Class
- --------------------------------------------------------------------------------
<PAGE>
- B11 -
BT PYRAMID MUTUAL FUNDS
DISTRIBUTION AGREEMENT
APPENDIX B
[FORM OF SUB-DISTRIBUTION AGREEMENT]
SUB-DISTRIBUTION AGREEMENT
[Date]
Ladies and Gentlemen:
ICC Distributors, Inc. ("ICC"), a Delaware corporation, serves as
distributor (the "Distributor") of the BT Pyramid Mutual Funds (the "Trust").
The Trust is an open-end investment company registered under the Investment
Company Act of 1940, as amended (the "Investment Company Act"). The Trust offers
its shares ("Shares") to the public in accordance with the terms and conditions
contained in the Prospectus of each series of the Trust as set forth in Appendix
A to this Sub-Distribution Agreement. The term "Prospectus" as used herein
refers to each prospectus on file with the Securities and Exchange Commission
which is part of the registration statement of the Trust under the Securities
Act of 1933 (the "Securities Act"). In connection with the foregoing you may
serve as a participating dealer (and, therefore, accept orders for the purchase
or redemption of Shares, respond to shareholder inquiries and perform other
related functions) on the following terms and conditions:
1. PARTICIPATING DEALER. You are hereby designated a Participating Dealer
and as such are authorized (i) to accept orders for the purchase of Shares and
to transmit to the Trust such orders and the payment made therefore, (ii) to
accept orders for the redemption of Shares and to transmit to the Trust such
orders and all additional material, as may be required to complete the
redemption and (iii) to assist shareholders with the foregoing and other matters
relating to their investments in each series of the Trust, in each case subject
to the terms and conditions set forth in the Prospectus of each series. You are
to review each Share purchase or redemption order submitted through you or with
your assistance for completeness and accuracy. You further agree to undertake
from time to time certain shareholder servicing activities for customers of
yours who have purchased Shares and who use your facilities to communicate with
the Trust or to effect redemptions or additional purchases of the Shares.
2. LIMITATION OF AUTHORITY. No person is authorized to make any
representations concerning the Trust or the Shares except those contained in the
Prospectus of each Fund and in such printed information as the Distributor may
subsequently prepare. No person is authorized to distribute any sales material
relating to any Fund without the prior written approval of the Distributor.
3. COMPENSATION. The Distributor will pay compensation for such services,
if applicable, as agreed upon from time to time for each series of the Trust.
4. PROSPECTUS AND REPORTS. You agree to comply with the provisions
contained in the Securities Act governing the distribution of prospectuses to
persons to whom you offer Shares. You further agree to deliver, upon our
request, copies of any amended Prospectus of the relevant series to purchasers
whose Shares you are holding as record owner and to deliver to such persons
copies of the annual and interim reports and proxy solicitation materials of the
series. We agree to furnish to you as many copies of each Prospectus, annual and
interim reports and proxy solicitation materials as you may reasonably request.
5. QUALIFICATION TO ACT. You represent that you are a member in good
standing of the National Association of Securities Dealers, Inc. (the "NASD").
Your expulsion or suspension from the NASD will automatically terminate this
Agreement on the effective date of such expulsion or suspension. You agree that
you will not offer Shares to persons in any jurisdiction in which you may not
lawfully make such offer due to the fact that you have not registered under, or
are not exempt from, the applicable registration or licensing requirements of
such jurisdiction. You agree that in performing the services under this
Agreement, you at all times, will comply with the Conduct Rules (formerly the
Rules of Fair Practice) of the NASD, including, without limitation, the
provisions of Rule 2830 (formerly Section 26) of such Rules. You also agree that
you will place orders immediately upon their receipt and will not withhold any
order so as to profit therefrom. In determining the amount payable to you
hereunder, we reserve the right to exclude any sales which we reasonably
determine are not made in accordance with the terms of the relevant prospectus
and provisions of the Agreement.
6. BLUE SKY. The series of the Trust have registered an indefinite number
of Shares under the Securities Act. The Trust intends to make appropriate notice
filings in certain states where such filing is required. We will inform you as
to the states or other jurisdictions in which we believe the Shares are eligible
for sale under the respective securities laws of such states. You agree that you
will offer Shares to your customers only in those states where such Shares are
eligible to be sold. We assume no responsibility or obligation as to your right
to sell Shares in any jurisdiction.
7. AUTHORITY OF TRUST. The Trust shall have full authority to take such
action as it deems advisable in respect of all matters pertaining to the
offering of its Shares, including the right not to accept any order for the
purchase of Shares.
8. RECORD KEEPING. You will (i) maintain all records required by law to be
kept by you relating to transactions in Shares and, upon request by the Trust,
promptly make such of these records available to the Trust as the Trust may
reasonably request in connection with its operations and (ii) promptly notify
the Fund if you experience any difficulty in maintaining the records described
in the foregoing clauses in an accurate and complete manner.
9. LIABILITY. The Distributor shall be under no liability to you except
for lack of good faith and for obligations expressly assumed by it hereunder. In
carrying out your obligations, you agree to act in good faith and without
negligence. Nothing contained in this Agreement is intended to operate as a
waiver by the Distributor or you of compliance with any provisions of the
Investment Company Act, the Securities Act, the Securities Exchange Act of 1934,
as amended, or the rules and regulations promulgated by the Securities and
Exchange Commission thereunder.
10. TERMINATION. This Agreement may be terminated by either party, without
penalty, upon ten days' written notice to the other party and shall
automatically terminate in the event of its assignment, as defined in the
Investment Company Act. This Agreement may also be terminated at any time for
the Trust without penalty by the vote of a majority of the members of the Board
of Trustees who are not "interested persons" (as such phrase is defined in the
Investment Company Act) and who have no direct or indirect financial interest in
the operation of the Distribution Agreement between such Trust and the
Distributor or by the vote of a majority of the outstanding voting securities of
the Trust.
11. COMMUNICATIONS. All communications other than this agreement and those
pertaining to this agreement should be sent to the address listed below. Any
notice to you shall be duly given if mailed or telegraphed to you at the address
specified by you below.
[TA Address]
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us both copies of this Agreement to:
[----------]
C/O ICC DISTRIBUTORS, INC.
ATTN: DEALER SERVICES
P.O. BOX 7558
PORTLAND, MAINE 04101
ICC Distributors, Inc.
By: Benjamin L. Niles
Vice President
Confirmed and accepted:
Firm Name:
By:
Signature
Printed Name and Title
Date:
Address:
Clears Through:
Phone No.:
<PAGE>
BT PYRAMID MUTUAL FUNDS
SUB-DISTRIBUTION AGREEMENT
APPENDIX A
AS OF AUGUST 11, 1998
- -------------------------------------------------------
SERIES CLASS
- -------------------------------------------------------
- -------------------------------------------------------
BT Investment Money Market Fund
- -------------------------------------------------------
- -------------------------------------------------------
BT Investment Equity 500 Index
Fund
- -------------------------------------------------------
- -------------------------------------------------------
BT Investment Limited Term
U.S. Government Securities Fund
- -------------------------------------------------------
- -------------------------------------------------------
BT Institutional Asset
Management Fund
- -------------------------------------------------------
- -------------------------------------------------------
BT Investment Equity Investment Class
Appreciation Fund Advisor Class
- -------------------------------------------------------
- -------------------------------------------------------
BT PreservationPlus Fund Investment Class
Service Class
Institutional Service
Class, Institutional
Class
IRA Class
- -------------------------------------------------------
Exhibit 9(i) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
BT PYRAMID MUTUAL FUNDS
EXHIBIT D
TO THE
ADMINISTRATION AND SERVICES AGREEMENT
MADE AS OF OCTOBER 28, 1992
BETWEEN
BT PYRAMID MUTUAL FUNDS AND BANKERS TRUST COMPANY
AS REVISED: JUNE 10, 1998
BT Investment Money Market Fund..................................0.15%
BT Investment Equity 500 Index Fund..............................0.15%
BT Investment Limited Term U.S. Government Securities Fund.......0.30%
BT Institutional Asset Mangement Fund............................0.15%
BT Investment Equity Appreciation Fund
Advisor Class..............................................0.50%
Investment Class...........................................0.50%
BT PreservationPlus Fund
Institutional Class........................................0.10%
Institutional Service Class................................0.10%
Investment Class...........................................0.25%
Retirement Class...........................................0.35%
Service Class..............................................0.25%
Exhibit 11 under Form N-1A
Exhibit 8 under Item 601/Reg. S-K
Consent of Ernst & Young LLP, Independent Auditors
We consent to the references to our firm under the captions "Financial
Highlights" in the Prospectuses and "Financial Statements" in the Statement of
Additional Information of BT PreservationPlus Fund and to the incorporation by
reference in this Post-Effective Amendment No. 22 to the Registration Statement
(Form N-1A) (No. 33-45973) of BT Pyramid Mutual Funds of our report dated
October 30, 1998, included in the 1998 Annual Report to shareholders of BT
PreservationPlus Fund.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
November 19, 1998
Exhibit 9(iii) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
BT PYRAMID MUTUAL FUNDS
for
BT PreservationPlus Fund
AGREEMENT TO PROVIDE SHAREHOLDER SERVICES
Whereas BT Pyramid Mutual Funds (the "Trust") has adopted an Amended and
Restated Shareholder Services Plan as of October 14, 1998 (the "Plan"), and
Whereas the Plan is designed to provide services beneficial to
shareholders of certain classes of BT PreservationPlus Fund (the "Fund"), and
Whereas Bankers Trust Company (the "Bank") wishes to provide services to
the Trust in accordance with the Plan,
Now Therefore, the Trust and the Bank agree
1..... The Bank will provide, or will arrange for other qualified parties
to provide (the Bank and/or other qualified parties may be referred to
hereinafter as "Providers"), services to the Fund that may include without
limitation: establishing and maintaining shareholder and Plan participant
accounts, processing purchase and redemption transactions, arranging for bank
wires, performing shareholder sub-accounting, answering client inquiries
regarding the Fund and/or its classes, providing periodic statements showing the
investor/shareholder's account balance and those of Plan participants,
transmitting proxy statements, periodic reports, updated prospectuses and other
communications to shareholders and, with respect to meetings of shareholders,
collecting, tabulating and forwarding to the Trust executed proxies and
obtaining such other information and performing such other services as may
reasonably be required.
2..... In compensation for the services provided to this Plan, Providers,
including the Bank where appropriate, will be paid a quarterly fee with respect
to each class, computed at the annual rate not to exceed: 0.15 of 1% of the
average aggregate net asset value of the shares of the Institutional Service
Class held during the quarter; and 0.25 of 1% of the average aggregate net asset
value of the shares of each of the Retirement Class and the Service Class, held
during the quarter.
3..... Any payments made to any Provider other than the Bank will be made
pursuant to a "Shareholder Services Agreement" entered into by the Bank on
behalf of the respective class and the Provider.
4..... The Trust has the right (i) to select, in its sole discretion, the
Providers to participate in the Plan and (ii) to terminate (or cause the Bank to
terminate) without cause and in its sole discretion any Shareholder Services
Agreement.
5..... This Agreement shall become effective after approval by majority
votes of: (a) the Trust's Board of Trustees; and (b) the Disinterested Trustees
of the Trust, cast in person at a meeting called for the purpose of voting on
the Agreement.
6..... This Agreement shall remain in effect for the period of one year
from the date set forth above and may be continued thereafter if this Agreement
is approved with respect to each class at least annually by a vote of a majority
of the Trust's Board of Trustees and a majority of the Disinterested Trustees,
cast in person at a meeting called for the purpose of voting on such Agreement.
7..... Any material amendment to this Agreement must be approved by a vote
of the Board of Trustees of the Trust and of the Disinterested Trustees, cast in
person at a meeting called for the purpose of voting on it.
8..... This Agreement may be terminated with respect tothe Fund or any
class of shares thereof at any time by: (a) a majority vote of the Disinterested
Trustees; or (b) a vote of a majority of the outstanding voting securities of
that class as defined in Section 2(a)(42) of the Investment Company Act of 1940,
as amended.
9..... All agreements with any person relating to the implementation of
the Plan or this Agreement shall be in writing and any agreement shall be
subject to termination, without penalty, pursuant to the provisions of Paragraph
8 herein.
10.... The Bank is hereby expressly put on notice of the limitation of
liability as set forth in the Trust's Declaration of Trust and agrees that the
obligations assumed by the Trust pursuant to this Agreement shall be limited in
any case to the Trust and its assets and the Bank shall not seek satisfaction of
any obligation from the shareholders of the Trust, the Trustees, officers,
employees or agents of the Trust, or any of them.
11.... This Plan shall be construed in accordance with and governed by the
laws of the State of New York.
BT PYRAMID MUTUAL FUNDS
By: /S/ JAY S. NEUMAN
Name: Jay S. Neuman
Title: Secretary
BANKERS TRUST COMPANY
By: /S/ BRIAN W. WIXTED
Name: Brian W. Wixted
Title: Principal
Dated: October 14, 1998
Exhibit 9(ii) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
BT PYRAMID MUTUAL FUNDS
FOR BT PRESERVATIONPLUS FUND
SHAREHOLDER SERVICES PLAN
Adopted as of June 11, 1997
Amended and Restated as of October 14, 1998
This Shareholder Services Plan ("Plan") is adopted as of October 14, 1998
by the Board of Trustees of BT Pyramid Mutual Funds ("Trust"), a Massachusetts
business trust with respect to the Retirement Class, the Service Class and the
Institutional Service Class (the "Classes") of the BT PreservationPlus Fund (the
"Fund").
1. This Plan is adopted to allow the Classes to make payments as
contemplated herein to obtain certain services for shareholders and/or the
maintenance of shareholder accounts ("Services"). The Services may include
without limitation: establishing and maintaining shareholder and Plan
participant accounts, processing purchase and redemption transactions, arranging
for bank wires, performing shareholder sub-accounting, answering client
inquiries regarding the Fund and/or the Classes, providing periodic statements
showing the client's account balance and those of Plan participants,
transmitting proxy statements, periodic reports, updated prospectuses and other
communications to shareholders and, with respect to meetings of shareholders,
collecting, tabulating and forwarding to the Trust executed proxies and
obtaining such other information and performing such other services as may
reasonably be required.
2. This Plan is designed to compensate broker/dealers, Plan
administrators, other financial institutions and other persons ("Providers") for
providing services to the Fund and/or the Classes and their shareholders. The
Plan will be administered by Bankers Trust Company ("BT"). In compensation for
the services provided to this Plan, Providers, including BT where appropriate,
will be paid a quarterly fee with respect to each Class, computed at the annual
rate not to exceed: 0.15 of 1% of the average aggregate net asset value of the
shares of the Institutional Srvice Class held during the quarter; and 0.25 of 1%
of the average aggregate net asset value of the shares of each of the Retirement
Class and the Service Class, held during the quarter.
3. Any payments made to any Provider pursuant to this Plan will be made
pursuant to a "Shareholder Services Agreement" entered into by BT on behalf of
the respective Class and the Provider.
4. The Trust has the right (i) to select, in its sole discretion, the
Providers to participate in the Plan and (ii) to terminate without cause and in
its sole discretion any Shareholder Services Agreement.
5. Quarterly in each year that this Plan remains in effect, BT shall
prepare and furnish to the Board of Trustees of the Trust, and the Board of
Trustees shall review, a written report of the amounts expended under the Plan.
6. This Plan shall become effective (i) after approval by majority votes
of: (a) the Trust's Board of Trustees; and (b) the Disinterested Trustees of the
Trust, cast in person at a meeting called for the purpose of voting on the Plan;
and (ii) upon execution of an exhibit adopting this Plan.
7. This Plan shall remain in effect with respect to each Class for the
period of one year from the date set forth above and may be continued thereafter
if this Plan is approved with respect to each Class at least annually by a vote
of a majority of the Trust's Board of Trustees and majority of the Disinterested
Trustees, cast in person at a meeting called for the purpose of voting on such
Plan.
8. All material amendments to this Plan must be approved by a vote of the
Board of Trustees of the Trust and of the Disinterested Trustees, cast in person
at a meeting called for the purpose of voting on it.
9. This Plan may be terminated with respect to a Class at any time by: (a)
a majority vote of the disinterested Trustees; or (b) a vote of a majority of
the outstanding voting securities of that Class as defined in Section 2 (a) (42)
of the Investment Company Act of 1940, as amended.
10. While this Plan shall be in effect, the selection and nomination of
Disinterested Trustees of the Trust shall be committed to the discretion of the
Disinterested Trustees then in office.
11. All agreements with any person relating to the implementation of this
Plan shall be in writing and any agreement related to this Plan shall be subject
to termination, without penalty, pursuant to the provisions of Paragraph 9
herein.
12. This Plan shall be construed in accordance with and governed by the
laws of the State of New York.
Witness the due execution hereof this 14th day of October, 1998.
BT PYRAMID MUTUAL FUNDS
By: /S/ JAY S. NEUMAN
Name: Jay S. Neuman
Title: Secretary
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 01
<NAME> Preservation Plus Portfolio
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Sep-30-1998
<PERIOD-END> Sep-30-1998
<INVESTMENTS-AT-COST> 294,637,041
<INVESTMENTS-AT-VALUE> 298,589,033
<RECEIVABLES> 43,230,415
<ASSETS-OTHER> 600
<TOTAL-ASSETS> 341,820,048
<PAYABLE-FOR-SECURITIES> 0
<OTHER-ITEMS-LIABILITIES> 109,268,667
<TOTAL-LIABILITIES> 109,268,667
<PAID-IN-CAPITAL-COMMON> 232,551,381
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 232,551,381
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 7,385,026
<OTHER-INCOME> 544,838
<EXPENSES-NET> 435,257
<NET-INVESTMENT-INCOME> 7,494,607
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 7,494,607
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 232,551,381
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 435,257
<GROSS-EXPENSE> 679,655
<AVERAGE-NET-ASSETS> 129,148,640
<PER-SHARE-NAV-BEGIN> 0.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 0.00
<EXPENSE-RATIO> 0.35
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 02
<NAME> Preservation Plus Fund (Investment Class)
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Sep-30-1998
<PERIOD-END> Sep-30-1998
<INVESTMENTS-AT-COST> 232,551,276
<INVESTMENTS-AT-VALUE> 232,551,276
<RECEIVABLES> 1,299,933
<ASSETS-OTHER> 229,118
<TOTAL-ASSETS> 234,080,327
<PAYABLE-FOR-SECURITIES> 213,768
<OTHER-ITEMS-LIABILITIES> 1,129,378
<TOTAL-LIABILITIES> 1,343,146
<PAID-IN-CAPITAL-COMMON> 15,003,333
<SHARES-COMMON-STOCK> 1,500,333
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 15,003,333
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 7,494,602
<EXPENSES-NET> 112,861
<NET-INVESTMENT-INCOME> 7,381,741
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 7,381,741
<DISTRIBUTIONS-OF-INCOME> 528,312
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,085,270
<NUMBER-OF-SHARES-REDEEMED> (1,629,768)
<SHARES-REINVESTED> 44,831
<NET-CHANGE-IN-ASSETS> 232,737,181
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.56
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.56
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.00
<EXPENSE-RATIO> 0.55
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 03
<NAME> Preservation Plus Fund (Institutional Class
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Sep-30-1998
<PERIOD-END> Sep-30-1998
<INVESTMENTS-AT-COST> 232,551,276
<INVESTMENTS-AT-VALUE> 232,551,276
<RECEIVABLES> 1,299,933
<ASSETS-OTHER> 229,118
<TOTAL-ASSETS> 234,080,327
<PAYABLE-FOR-SECURITIES> 213,768
<OTHER-ITEMS-LIABILITIES> 1,129,378
<TOTAL-LIABILITIES> 1,343,146
<PAID-IN-CAPITAL-COMMON> 162,192,860
<SHARES-COMMON-STOCK> 16,219,286
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 162,192,860
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 7,494,602
<EXPENSES-NET> 112,861
<NET-INVESTMENT-INCOME> 7,381,741
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 7,381,741
<DISTRIBUTIONS-OF-INCOME> 5,716,544
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 18,237,037
<NUMBER-OF-SHARES-REDEEMED> (2,513,979)
<SHARES-REINVESTED> 496,228
<NET-CHANGE-IN-ASSETS> 232,737,181
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.46
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.46
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.00
<EXPENSE-RATIO> 0.40
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 04
<NAME> Preservation Plus Fund (Institutional Service Class)
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Sep-30-1998
<PERIOD-END> Sep-30-1998
<INVESTMENTS-AT-COST> 232,551,276
<INVESTMENTS-AT-VALUE> 232,551,276
<RECEIVABLES> 1,299,933
<ASSETS-OTHER> 229,118
<TOTAL-ASSETS> 234,080,327
<PAYABLE-FOR-SECURITIES> 213,768
<OTHER-ITEMS-LIABILITIES> 1,129,378
<TOTAL-LIABILITIES> 1,343,146
<PAID-IN-CAPITAL-COMMON> 55,136,558
<SHARES-COMMON-STOCK> 5,513,656
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 55,136,558
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 7,494,602
<EXPENSES-NET> 112,861
<NET-INVESTMENT-INCOME> 7,381,741
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 7,381,741
<DISTRIBUTIONS-OF-INCOME> 1,136,465
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,774,020
<NUMBER-OF-SHARES-REDEEMED> (1,352,200)
<SHARES-REINVESTED> 91,836
<NET-CHANGE-IN-ASSETS> 232,737,181
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.28
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.28
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.00
<EXPENSE-RATIO> 0.55
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 05
<NAME> Preservation Plus Fund (Service Class)
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Sep-30-1998
<PERIOD-END> Sep-30-1998
<INVESTMENTS-AT-COST> 232,551,276
<INVESTMENTS-AT-VALUE> 232,551,276
<RECEIVABLES> 1,299,933
<ASSETS-OTHER> 229,118
<TOTAL-ASSETS> 234,080,327
<PAYABLE-FOR-SECURITIES> 213,768
<OTHER-ITEMS-LIABILITIES> 1,129,378
<TOTAL-LIABILITIES> 1,343,146
<PAID-IN-CAPITAL-COMMON> 404,430
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 404,430
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 7,494,602
<EXPENSES-NET> 112,861
<NET-INVESTMENT-INCOME> 7,381,741
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 7,381,741
<DISTRIBUTIONS-OF-INCOME> 420
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 40,443
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 232,737,181
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.01
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.01
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.00
<EXPENSE-RATIO> 0.80
</TABLE>
