<PAGE>
As filed with the Commission on July 29, 1999
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
Post-Effective Amendment No. 29.................................... X
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 30................................................... X
BT PYRAMID MUTUAL FUNDS
(Exact Name of Registrant as Specified in Charter)
One South Street, Baltimore, Maryland 21202
(Address of Principal Executive Offices)
(410) 895-3433
(Registrant's Telephone Number)
Daniel O. Hirsch, Esq. Copies to: Burton M. Leibert, Esq.
One South Street Willkie Farr & Gallagher
Baltimore, Maryland 21202 787 Seventh Ave
(Name and Address of Agent New York, New York 10019
for Service)
It is proposed that this filing will become effective (check appropriate box):
[ ] Immediately upon filing pursuant to paragraph (b)
[X] On July 31, 1999, 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.
Asset Management Portfolio has also executed this Registration Statement.
<PAGE>
PROSPECTUS: JULY 31, 1999
BT Institutional Asset
Management Fund
A mutual fund
which allocates
its investments
among stocks,
bonds and short-
term instruments
BT Mutual Funds
[BT Mutual Funds Logo Appears Here]
TRUST: BT PYRAMID MUTUAL FUNDS
INVESTMENT ADVISER: BANKERS TRUST COMPANY
[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.]
<PAGE>
<PAGE>
Overview
of the BT Institutional Asset Management Fund
- -- --
Goal: The Fund seeks high total return with reduced risk over the
long term.
Core Strategy: The Fund allocates its investments among three asset
classes: stocks, bonds and short-term instruments.
- -- --
BT Institutional Asset Management Fund
Overview of the BT Institutional Asset Management Fund
<TABLE>
<C> <S>
3 Goal
3 Core Strategy
3 Investment Policies and Strategies
4 Principal Risks of Investing in the Fund
4 Who Should Consider Investing in the Fund
5 Total Returns, After Fees and Expenses
6 Annual Fund Operating Expenses
A Detailed Look at the BT Institutional Asset Management Fund
7 Objective
7 Strategy
7 Principal Investments
8 Investment Process
8 Risks
9 Management of the Fund
11 Calculating the Fund's Share Price
11 Performance Information
11 Dividends and Distributions
11 Tax Considerations
11 Buying and Selling Fund Shares
14 Financial Highlights
</TABLE>
INVESTMENT POLICIES AND STRATEGIES
The Fund invests all of its assets in a master portfolio with the same
investment objective as the Fund. The Fund, through the master portfolio,
seeks to achieve that objective by investing in three principal asset
classes--stocks, bonds and short-term instruments. The Fund's investment in
each asset class fluctuates depending on the Investment Adviser's judgment of
how to provide the most favorable return consistent with the Fund's goal.
- -------------------------------------------------------------------------------
Asset allocation funds offer investors professional management and a
convenient means of diversifying their holdings in various asset classes
within a single fund. Asset allocation funds also relieve investors of the
administrative burdens typically associated with purchasing and holding these
instruments.
3
--
<PAGE>
Overview of the BT Institutional Asset Management Fund
PRINCIPAL RISKS OF INVESTING IN THE FUND
An investment in the Fund could lose money, or the Fund's performance could
trail that of other investments. For example:
.The asset allocation strategy chosen by the Investment Adviser could perform
poorly.
.The individual stocks, bonds and short-term instruments chosen by the
Investment Adviser could decline in value.
.An issuer's creditworthiness could decline, which in turn may cause the value
of a security in the Fund's portfolio to decline.
.A rise in interest rates could cause the fixed income markets and individual
securities in the Fund's portfolio to decline in value.
.Stock prices could decline generally.
WHO SHOULD CONSIDER INVESTING IN THE FUND
The Fund is designed to combine the benefits and risks of investing in stocks,
bonds and short-term instruments. With the Fund, the decision of how much of
your portfolio to invest among the three asset classes is left to
professionals. All you decide is how long it will be until you need to access
your investment.
You should consider investing in the Institutional Asset Management Fund if
you are seeking high total return over the long term and have more than ten
years until you need your investment.
There is, of course, no guarantee that the Fund will realize its goal.
The Fund by itself does not constitute a balanced investment program.
Diversifying your investments may improve your long-run investment return and
lower the volatility of your overall investment portfolio.
An investment in the Fund is not a deposit of Bankers Trust Company or any
other bank and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
4
--
<PAGE>
Overview of the BT Institutional Asset Management Fund
Year-by-Year Returns
(each full calendar year since inception)
[CHART APPEARS HERE]
1994 -3.22%
1995 23.53%
1996 16.23%
1997 23.51%
1998 21.51%
The Fund's return for the period January 1, 1999 to June 30, 1999 was 6.04%.
During the period shown in the bar chart, the Fund's highest return in any
calendar quarter was 11.81% (fourth quarter 1998) and its lowest quarterly
return was -4.49% (third quarter 1998). Past performance offers no indication
of how the Fund will perform in the future.
Average Annual Returns
(as of December 31, 1998)
<TABLE>
<CAPTION>
Since inception
1 year 5 years (September 16, 1993)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
BT Institutional Asset Management Fund 21.51% 15.83% 15.09%
===============================================================================
S&P 500 Index 28.58% 24.06% 23.33%/1/
- -------------------------------------------------------------------------------
Salomon Broad Investment Grade Bond Index 8.72% 7.30% 6.94%/1/
- -------------------------------------------------------------------------------
Asset Allocation Index -- Long Range/2/ 19.60% 16.26% 15.73%/1/
- -------------------------------------------------------------------------------
</TABLE>
/1/The Indexes' return is calculated from September 30, 1993.
/2/The Asset Allocation Index--Long Range is a blend of several indexes: 55%
S&P 500 Index, 35% Salomon Broad Investment Grade Bond Index, and 10% U.S.
Treasury Bill 3-Month Index.
TOTAL RETURNS, AFTER FEES AND EXPENSES
The bar chart and table on this page can help you evaluate the potential risks
and rewards of investing in the Fund by showing changes in the Fund's
performance year to year. The bar chart shows the Fund's actual return for
each full calendar year since the Fund began selling shares on September 16,
1993 (its inception date). The table compares the Fund's average annual return
with the Standard & Poor's 500 Composite Stock Price Index ("S&P 500 Index")
and two other indexes over the last calendar year, the last five calendar
years and since the Fund's inception. An index is a model, not an actual
portfolio. It is a group of securities whose overall performance is used as a
standard to measure investment performance. It does not factor in the costs of
buying, selling and holding securities--costs which are reflected in the
Fund's results.
- -------------------------------------------------------------------------------
The S&P 500 Index is a well-known stock market index that includes common
stocks of 500 companies from several industrial sectors representing a
significant portion of the market value of all stocks publicly traded in the
United States, most of which are traded on the New York Stock Exchange. Stocks
in the S&P 500 Index are weighted according to their market capitalization
(the number of shares outstanding multiplied by the stock's current price).
5
--
<PAGE>
Overview of the BT Institutional Asset Management Fund
ANNUAL FUND OPERATING EXPENSES
(expenses paid from Fund assets)
The Annual Fees and Expenses table to the right describes the fees and expenses
that you may pay if you buy and hold shares of the Fund.
Expense Example. The example below illustrates the expenses incurred on a
$10,000 investment in the Fund. The example assumes that the Fund earned an
annual return of 5% over the periods shown, the Fund's operating expenses
remained the same and you sold your shares at the end of the period.
You may use this hypothetical example to compare the Fund's expense history
with other funds. The example does not represent an estimate of future returns
or expenses. Actual costs may be higher or lower.
/3/Information on the annual operating expenses for the Fund reflects the
expenses of both the Fund and the master portfolio in which it invests its
assets. (A further discussion of the relationship between the Fund and its
Portfolio appears in the "Organizational Structure" section of this
prospectus.)
/4/Bankers Trust has agreed, for the 16-month period from the end of the Fund's
fiscal year-end of March 31, 1999, to waive its fees and reimburse expenses so
that total expenses will not exceed 0.60%.
/5/Based on expenses, after fee waivers and reimbursements for the first 16
months only.
Annual Fees and Expenses
<TABLE>
<CAPTION>
Percentage of average
daily net assets/3/
- -------------------------------------------------------------------
<S> <C>
Management fees 0.65%
- -------------------------------------------------------------------
Distribution and service (12b-1) fees None
- -------------------------------------------------------------------
Other fund operating expenses 0.28%
- -------------------------------------------------------------------
Total fund operating expenses 0.93%
- -------------------------------------------------------------------
Less: fee waiver or expense reimbursement/4/ (0.33)%
- -------------------------------------------------------------------
Net expenses 0.60%
===================================================================
</TABLE>
Expense Example/5/
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$61 $259 $488 $1,146
</TABLE>
6
--
<PAGE>
A detailed look
at the BT Institutional Asset Management Fund
OBJECTIVE
The Institutional Asset Management Fund seeks high total return with reduced
risk over the long term.
While we give priority to seeking the Fund's goal, we cannot offer any
assurance of achieving its objective. The Fund's objective is not a
fundamental policy. We must notify shareholders before we change it, but we do
not require their approval to do so.
STRATEGY
In seeking the Fund's goal, the Investment Adviser allocates the Fund's assets
among three principal asset classes: stocks, bonds and short-term instruments.
The Fund's assets will be allocated among the three asset classes based on the
following guidelines:
<TABLE>
<CAPTION>
Short-Term
Stocks Bonds Instruments
- -------------------------------------------------------------
<S> <C> <C> <C>
Institutional Asset Management Fund 55% 35% 10%
</TABLE>
The Fund's assets will rarely be exactly in line with these guidelines.
Rather, the Fund's investment in each asset class fluctuates depending on the
Investment Adviser's perception of the opportunities available among the three
asset classes and the relative risks associated with such opportunities,
consistent with the Fund's goal.
The Investment Adviser will generally allocate the Fund's assets within the
following ranges:
<TABLE>
<CAPTION>
Short-Term
Stocks Bonds Instruments
- ---------------------------------------------------------------
<S> <C> <C> <C>
Institutional Asset Management Fund 40-70% 25-55% 0-25%
</TABLE>
For example, as of March 31, 1999, the Fund's allocation to each asset class
was as follows:
<TABLE>
<CAPTION>
Short-Term
Stocks Bonds Instruments
- -------------------------------------------------------------
<S> <C> <C> <C>
Institutional Asset Management Fund 56% 39% 5%
</TABLE>
The Fund's allocation to a particular asset class will not match the
percentage of its assets invested directly in that asset class. The Fund
regularly uses derivatives to increase or decrease the Fund's exposure to the
various asset classes.
- -------------------------------------------------------------------------------
Generally, a derivative is a financial arrangement that derives its value from
a traditional security (like a stock or bond), asset or index.
PRINCIPAL INVESTMENTS
Short-Term Instruments. The short-term instruments in which the Fund invests
include domestic and foreign securities, money market mutual funds and money
market instruments with remaining maturities of thirteen months or less. The
Investment Adviser seeks to maximize total return within this asset class by
investing in securities that take advantage of differences in yields among
instruments or issuers of currencies.
The Fund may invest in:
.Short-term obligations of the U.S. or foreign governments, their agencies and
instrumentalities;
.Other short-term debt securities rated within the top two rating categories
by a nationally recognized statistical rating organization (or, if unrated,
determined to be of similar quality by the Fund's Investment Adviser);
.Commercial paper;
.Bank obligations including negotiable certificates of deposit, time deposits
and bankers' acceptances;
.Repurchase agreements, which are agreements to buy securities at one price,
with a simultaneous agreement to sell back the securities at a future date at
an agreed-upon price; and
.Money market mutual funds.
At the time of the Fund's investment in commercial paper, bank obligations or
repurchase agreements, the issuer (or the issuer's parent) must have
outstanding debt rated within the top two rating categories by a nationally
recognized statistical rating organization (or, if unrated, determined to be
of similar quality by the Fund's Investment Adviser).
- -------------------------------------------------------------------------------
Maturity measures the time remaining until an issuer must repay a security's
principal in full.
Yield is determined by dividing the coupon rate (the interest rate a borrower
agrees to pay when issuing a security) by the purchase price. The yield of a
security will rise as the security's price falls and vice versa.
7
--
<PAGE>
A Detailed Look at the BT Institutional Asset Management Fund
Bonds. These securities include investment-grade domestic and foreign fixed
income securities with remaining maturities or durations greater than thirteen
months. The Investment Adviser seeks to maximize total returns within the bond
class by adjusting the Fund's investments in securities with different credit
qualities, maturities and coupon or dividend rates, as well as by seeking
securities that take advantage of differences in yields among instruments or
issuers of currencies. Securities in this asset class include bonds, notes,
adjustable-rate preferred stocks, convertible bonds, mortgage-related and
asset-backed securities, domestic and foreign government agency securities,
zero coupon bonds, Rule 144A securities (securities whose resale is
restricted), and other intermediate- and long-term securities.
Stocks. These securities include domestic and foreign equity securities of all
types. The Fund's Investment Adviser seeks to maximize total return within
this asset class by actively allocating assets to industry sectors that we
expect to benefit from major trends, and to individual stocks that we believe
have superior potential. Securities in this asset class include common stocks,
fixed rate preferred stocks (including convertible preferred stock), warrants,
rights, depositary receipts, TBA (to be announced) purchase commitments and
other equity securities issued by companies of any size, located anywhere in
the world.
Derivatives. The Fund invests in various instruments commonly known as
"derivatives" to increase its exposure to an asset class. The Fund primarily
uses futures and options, forward currency transactions and swaps. The
Investment Adviser may use derivatives in circumstances where the Adviser
believes they offer an economical means of gaining exposure to a particular
asset class. The Fund may also invest in derivatives to keep cash on hand to
meet shareholder redemptions or other needs while maintaining exposure to the
market.
- -------------------------------------------------------------------------------
Investment-grade securities are rated within the top four rating categories by
a nationally recognized statistical rating organization.
Duration measures the sensitivity of bond prices to changes in interest rates.
The longer the duration of a bond, the longer it will take to repay the
principal and interest obligations and the more sensitive it is to changes in
interest rates. Investors in longer-duration bonds face more risk as interest
rates rise, but also are more likely to receive more income from their
investment to compensate for the risk.
Futures and options on futures contracts are used as a low-cost method for
gaining exposure to a particular securities market without investing directly
in those securities.
Forward currency transactions are the purchase or sale of a foreign currency
at an exchange rate established now, but with payment and delivery at a
specified future time. Forward currency transactions are used as hedges and,
where possible, to add to investment returns.
A swap is a transaction where one security or characteristic of a security is
swapped for another. An example is when one party trades newly issued stock
for existing bonds with another party.
INVESTMENT PROCESS
The Investment Adviser regularly reviews the Fund's investment allocations and
will vary them to favor asset classes that, in our judgment, provide the most
favorable total return outlook consistent with the Fund's investment
objective. In deciding how to allocate the Fund's assets, we will evaluate
projections of risk, market and economic conditions, volatility, yields and
expected return.
In managing the Fund, the Investment Adviser uses:
.Statistical processes including a database system to help analyze past
situations and trends;
.Portfolio management professionals to determine asset allocation and to
select individual securities; and
.Its own credit analysis as well as credit analysis provided by rating
services to determine the quality of debt securities and short-term
instruments.
Portfolio Turnover. The portfolio turnover rate measures the frequency that
the Fund sells and replaces the value of its securities within a given period.
Historically, the Fund has had a high portfolio turnover rate. High turnover
can increase a Fund's transaction costs, thereby lowering its returns. It may
also increase your tax liability.
RISKS
Below we set forth some of the prominent risks associated with investing in
general, as well as the risks associated with asset allocation funds and each
asset class. The Fund's exposure to the risks associated with each asset class
will depend on its current investment allocation to that class.
Primary Risks
Asset Allocation Risk. Although asset allocation among different asset classes
generally limits risk and exposure to any one class, the risk remains that the
Investment Adviser favors an asset class that performs poorly relative to the
other asset classes. For example, deteriorating stock market conditions might
cause an overall weakness in the market that reduces the absolute level of
stock prices in that market. If the Fund was invested primarily in stocks, it
would perform poorly relative to a Fund invested primarily in bonds.
Security Selection Risk. A risk that pervades all investing is the risk that
the securities in a Fund's portfolio will decline in value.
Interest Rate Risk. Interest rate risk is the risk that securities will
decline in value because of changes in interest rates. Generally, investments
subject to interest rate risk will decrease in value when interest rates rise
(and increase in value when interest rates decline). To address movements in
8
--
<PAGE>
A Detailed Look at the BT Institutional Asset Management Fund
interest rates, the Investment Adviser attempts to adjust the Fund's holdings
of long- and short-term securities to reflect our expectations of changes in
interest rates.
Credit Risk. Credit risk is the risk that an issuer or counterparty declines
in creditworthiness or defaults, which would cause the value of the issuer's
security to decline. Also, issuers may not be able to pay the interest on the
securities they have issued. As a way of reducing these risks, the Fund
invests only in investment-grade debt securities to provide an added level of
protection when economic conditions deteriorate. In addition, we continuously
monitor the financial well-being of the issuers of the securities that the
Fund owns. We may sell those that show the signs of weakness that may lead to
a ratings downgrade or even to default.
Futures and Options. Futures and options can be volatile investments and may
not perform as expected. For futures contracts and options on futures
contracts used for non-hedging purposes, the margin and premiums required to
make those investments will not exceed 5% of the Fund's net asset value after
taking into account unrealized profits and losses on the contracts. Futures
contracts and options on futures contracts used for non-hedging purposes
involve greater risks than stock investments.
Foreign Investments. To the extent that the Fund holds securities based
outside the United States, political, economic or social developments in
foreign countries could undermine the value of a Fund's investments or prevent
the Fund from realizing their full value. Different accounting and financial
reporting standards, or less stringent enforcement of these standards, could
convey incomplete, inaccurate or misleading information about a Fund
investment. The use of derivatives in foreign markets also involves additional
risks.
Currency Risk. The Fund invests in foreign securities denominated in foreign
currencies. This creates the possibility that changes in foreign exchange
rates will affect the value of foreign securities and, thus, the U.S. dollar
amount of income or gain received on these securities. We seek to minimize
this risk by actively managing the currency exposure of the Fund. There is no
guarantee that these currency management activities will work and they could
cause losses to the Fund.
Secondary Risks
Pricing Risk. We value securities in the Fund at their stated market value if
price quotations are available and, if not, by the method that most accurately
reflects their current worth in the judgment of the Board of Trustees. This
procedure implies an unavoidable risk, the risk that our prices are higher or
lower than the prices that the securities might actually command if we sold
them. If we have valued the securities too highly, you may end up paying too
much for Fund shares when you buy. If we underestimate their price, you may
not receive the full market value for your Fund shares when you sell.
Year 2000 Risk. As with most businesses, the Fund faces the risk that the
computer systems of its Investment Adviser and other companies on which it
relies for service or in which it invests will not accommodate the changeovers
necessary from dates in the year 1999 to dates in the year 2000. These risks
could adversely affect:
.The issuers in which the Fund invests, which could impact the value of the
Fund's investments;
.Our ability to service your Fund account, including our ability to meet your
requests to buy and sell Fund shares; and
.Our ability to trade securities held by the Fund or to accurately price
securities held by the Fund.
We are working both internally and with our business partners and service
providers to address this problem. If we--or our business partners, service
providers, government agencies or other market participants--do not succeed,
it could materially affect shareholder services or it could affect the value
of the Fund's shares.
Temporary Defensive Position. We may from time to time adopt a temporary
defensive position in response to extraordinary adverse political, economic or
stock market events. For temporary defensive purposes, we may invest a
substantial portion of the Fund's assets in cash and money market instruments.
To the extent we find it necessary to invest in such securities, the Fund will
not be invested to meet its investment objective.
MANAGEMENT OF THE FUND
Board of Trustees. The Fund's shareholders, voting in proportion to the number
of shares each owns, elect a Board of Trustees, and the Trustees supervise all
the Fund's activities on their behalf.
Investment Adviser. Under the supervision of the Board of Trustees, Bankers
Trust Company, with headquarters at 130 Liberty Street, New York, NY 10006,
acts as the Fund's investment adviser. As investment adviser, Bankers Trust
makes the Fund's investment decisions and assumes responsibility for the
securities the Fund owns. It buys and sells securities for the Fund and
conducts the research that leads to the purchase and sale decisions. Bankers
Trust
9
--
<PAGE>
A Detailed Look at the BT Institutional Asset Management Fund
received a fee of 0.65% of the Fund's average daily net assets for its
services in the last fiscal year.
Bankers Trust's officers bring wide experience to managing both the Fund and
its portfolio. The firm's own record dates back to its founding as a trust
company in 1903. It has invested retirement assets on behalf of the nation's
largest corporations and institutions for more than 50 years. The scope of the
firm's capability is broad: It is a leader in both the active and passive
quantitative investment disciplines and maintains a major presence in stock
and bond markets worldwide.
On March 11, 1999, Bankers Trust announced that it had reached an agreement
with the United States Attorney's Office in the Southern District of New York
to resolve an investigation concerning inappropriate transfers of unclaimed
Fund and related record-keeping problems that occurred between 1994 and early
1996. Pursuant to its agreement with the U.S. Attorney's Office, Bankers Trust
pleaded guilty to misstating entries in the bank's books and records and
agreed to pay a $60 million fine to federal authorities. Separately, Bankers
Trust agreed to pay a $3.5 million fine to the State of New York. The events
leading up to the guilty pleas did not arise out of the investment advisory or
mutual fund management activities of Bankers Trust or its affiliates.
As a result of the plea, absent an order from the SEC, Bankers Trust would not
be able to continue to provide investment advisory services to the Fund. The
SEC has granted a temporary order to permit Bankers Trust and its affiliates
to continue to provide investment advisory services to registered investment
companies. There is no assurance that the SEC will grant a permanent order.
Prior to June 4, 1999, Bankers Trust was a wholly-owned subsidiary of Bankers
Trust Corporation. On June 4, 1999, Bankers Trust Corporation merged with and
into a subsidiary of Deutsche Bank AG. Deutsche Bank AG is a major global
banking institution that is engaged in a wide range of financial services,
including investment management, mutual fund, retail and commercial banking,
investment banking and insurance. Because Deutsche Bank AG, as Bankers Trust's
new parent company, controls its operations as investment adviser, the Fund's
shareholders will be asked to approve a new investment advisory agreement. A
Special Meeting of Shareholders will be held for this purpose. Bankers Trust
believes that, under this new agreement, the services provided to the Fund
will be maintained at their current level.
Portfolio Manager. The following portfolio manager is responsible for the day-
to-day management of the master portfolio's investments.
Craig Russell
.Managing Director of Bankers Trust and portfolio manager for the portfolio.
.Joined Bankers Trust in 1992 and began managing the master portfolio in July
1999.
.Over 10 years of financial industry experience.
.Bachelor's degree in engineering from the University of Michigan.
Other Services. Bankers Trust provides administrative services--such as
portfolio accounting, legal services and others--for the Fund. In addition,
Bankers Trust--or your broker or financial advisor--performs the functions
necessary to establish and maintain your account. In addition to setting up
the account and processing your purchase and sale orders, these functions
include:
.keeping accurate, up-to-date records for your individual Fund account;
.implementing any changes you wish to make in your account information;
.processing your requests for cash dividends and distributions from the Fund;
.answering your questions on the Fund's investment performance or
administration;
.sending proxy reports and updated prospectus information to you; and
.collecting your executed proxies.
Brokers and financial advisors may charge additional fees to investors only
for those services not otherwise included in the Bankers Trust servicing
agreement, such as cash management or special trust or retirement investment
reporting.
Organizational Structure. The Fund is "feeder fund" that invests all of its
assets in a "master portfolio," the Asset Management Portfolio. The Fund and
its master portfolio have the same investment objective. The master portfolio
is advised by Bankers Trust.
The master portfolio may accept investments from other feeder funds. A feeder
bears the master portfolio's expenses in proportion to its assets. Each feeder
can set its own transaction minimums, fund-specific expenses and other
conditions. This arrangement allows a Fund's Trustees to
10
--
<PAGE>
A Detailed Look at the BT Institutional Asset Management Fund
withdraw the Fund's assets from the master portfolio if they believe doing so
is in the shareholder's best interests. If the Trustees withdraw the Fund's
assets, they would then consider whether the Fund should hire its own
investment adviser, invest in a different master portfolio or take other
action.
CALCULATING THE FUND'S SHARE PRICE
We calculate the daily price of the Fund's shares (also known as the "net
asset value" or "NAV") in accordance with the standard formula for valuing
mutual fund shares at the close of regular trading on the New York Stock
Exchange every day the Exchange is open for business.
The formula calls for deducting all of the Fund's liabilities from the total
value of its assets -- the market value of the securities it holds, plus its
cash reserves -- and dividing the result by the number of shares outstanding.
We value the securities in the Fund at their stated market value if price
quotations are available. When price quotations for a particular security are
not readily available, we determine their value by the method that most
accurately reflects their current worth in the judgment of the Board of
Trustees. You can find the Fund's daily share price in the mutual fund
listings of most major newspapers.
PERFORMANCE INFORMATION
The Fund's performance can be used in advertisements that appear in various
publications. It may be compared to the performance of various indexes and
investments for which reliable performance data is available. The Fund's
performance may also be compared to averages, performance rankings or other
information prepared by recognized mutual fund statistical services.
DIVIDENDS AND DISTRIBUTIONS
Dividends, if any, are paid quarterly. Capital gains will be distributed at
least annually. We automatically reinvest all dividends and any capital gains,
unless you tell us otherwise.
TAX CONSIDERATIONS
The Fund does not ordinarily pay income taxes. You and other shareholders pay
taxes on the income or capital gains
- -------------------------------------------------------------------------------
The Exchange is open every week, Monday through Friday, except when the
following holidays are celebrated: New Year's Day, Martin Luther King, Jr. Day
(the third Monday in January), Presidents' Day (the third Monday in February),
Good Friday, Memorial Day (the last Monday in May), Independence Day, Labor
Day (the first Monday in September), Thanksgiving Day (the fourth Thursday in
November) and Christmas Day.
from the Fund's holdings. Your taxes will vary from year to year, based on the
amount of capital gains distributions and dividends paid out by the Fund. You
owe the taxes whether you receive cash or choose to have distributions and
dividends reinvested. Distributions and dividends usually create the following
tax liability:
<TABLE>
<CAPTION>
Transaction Tax Status
- ---------------------------------------------------------------------------
<S> <C>
Income dividends Ordinary income
Short-term capital gains distributions Ordinary income
Long-term capital gains distributions Capital gains
Every year your Fund will send you information on the distributions for the
previous year. In addition, if you sell your Fund shares you may have a
capital gain or loss.
<CAPTION>
Transaction Tax Status
- ---------------------------------------------------------------------------
<S> <C>
Your sale of shares owned more Capital gains or losses
than one year
Your sale of shares owned Gains treated as
for one year or less ordinary income;
losses subject
to special rules.
</TABLE>
The tax considerations for tax deferred accounts or non-taxable entities will
be different.
Because each investor's tax circumstances are unique and because the tax laws
are subject to change, we recommend that you consult your tax advisor about
your investment.
BUYING AND SELLING FUND SHARES
Contacting the BT Mutual Funds
BT Service Center
By phone 1-800-368-4031
By mail P.O. Box 419210
Kansas City, MO 64141-6210
By overnight mail 210 West 10th Street, 8th floor
Kansas City, MO 64105-1716
Our representatives are available to assist you personally Monday through
Friday, 9:00 a.m. to 6:00 p.m., Eastern time each day the New York Stock
Exchange is open for business. You can reach the BT Service Center's automated
assistance line 24 hours a day, 7 days a week.
11
--
<PAGE>
A Detailed Look at the BT Institutional Asset Management Fund
Minimum Account Investments
To open an account $5 million
To add to an account $100,000
Minimum account balance $1 million
How to Open Your Fund Account
By mail Complete and sign the account application that accompanies this
prospectus. (You may obtain additional applications by calling
the BT Service Center.) Mail the completed application along
with a check payable to BT Institutional Asset Management
Fund -- 482.
By wire Call the BT Service Center to set up a wire account.
Please note that your account cannot become activated until we receive a
completed application via mail or fax.
Two Ways to Buy and Sell Shares in Your Account
MAIL:
Buying: Send your check, payable to the BT Fund you have selected (or to "BT
Funds" if you are investing in more than one fund), to the BT Service Center.
The addresses are shown in this section under "Contacting the BT Mutual
Funds." Be sure to include your account number on your check. Please note that
we cannot accept starter checks or third-party checks.
Selling: Send a signed letter to the BT Service Center with your name, fund
number and account number (see your account statement), the fund's name, and
either the number of shares you wish to sell or the dollar amount you wish to
receive. You must leave at least $1 million worth of shares in your account to
keep it open. Unless exchanging into another BT Fund, you must submit a
written authorization to sell shares in a retirement account.
WIRE:
Buying: You may buy shares by wire only if your account is authorized to do
so. Contact your financial advisor or the BT Service Center at 1-800-368-4031
by 4 p.m. Eastern time to notify us in advance of a wire transfer purchase.
Inform the BT representative of the amount of your purchase and receive a
trade confirmation number. Instruct your bank to send payment by wire using
the following wire instructions. All wires must be received by 4:00 p.m.
Eastern time.
Routing No: 021001033
Attn: Bankers Trust/BT Funds
DDA no: 00-226-296
FBO: (Account name)
(Account number)
Credit: (Fund name and number)
See your account statement for the account name, number and fund number.
Selling: You may sell shares by wire only if your account is authorized to do
so. For your protection, you may not change the wire instructions relating to
the destination bank account over the phone. To sell by wire, contact your
financial advisor or the BT Service Center at 1-800-368-4031 prior to 4:00
p.m. Eastern time. Inform the BT representative of the amount of your
redemption and receive your trade confirmation number. The minimum redemption
by wire is $1,000. We must receive your order by 4:00 p.m. Eastern time to
wire your account the next business day.
Important Information about Buying and Selling Shares
.After receiving your order, we buy or sell your shares at the next price
calculated on a day the New York Stock Exchange is open for business.
.We accept payment for shares only in U.S. dollars by check, bank or Federal
Funds wire transfer, or by electronic bank transfer. Please note that we do
not accept starter checks or third-party checks.
.We remit proceeds from the sale of shares in U.S. dollars (unless the
redemption is so large that it is made "in-kind").
.You may place orders to buy and sell over the phone by calling your financial
advisor or the BT Service Center at 1-800-368-4031. If you pay for shares by
check and the check fails to clear, or if you order shares by phone and fail
to pay for them by 4:00 p.m. Eastern time, we have the right to cancel your
order, hold you liable or charge you or your account for any losses or fees
the fund or its agents have incurred. Unless you request a wire, we will send
you a check. For your protection, you may not change your account address over
the phone.
.You may buy and sell shares of the fund through authorized brokers and
financial advisors as well as from BT Mutual Funds directly. The same terms
and conditions apply. Specifically, once you place your order with a broker or
financial advisor, it is considered received by 4:00 p.m. Eastern time. It is
then your broker or financial advisor's responsibility to transmit the order
to the BT Service Center by the next business day. You should contact your
broker or financial advisor if you have a dispute as to when your order was
placed with the Fund.
.We do not issue share certificates.
12
--
<PAGE>
A Detailed Look at the BT Institutional Asset Management Fund
.We process all sales orders free of charge.
.Unless otherwise instructed, we normally mail a check for the proceeds from
the sale of your shares to your account address the next business day but
always within seven days.
.We reserve the right to close your account on 30 days' notice if it fails to
meet minimum balance requirements for any reason other than a change in market
value. We also reserve the right to reject any purchase order.
.If you sell shares by mail or wire, you may be required to obtain a signature
guarantee. Please contact your financial advisor or the BT Service Center for
more information.
.Selling shares of trust accounts and business or organization accounts may
require additional documentation. Please contact your financial advisor or the
BT Service Center for more information.
.During periods of heavy market activity, you may have trouble reaching the BT
Service Center by telephone. If this occurs, you should make your request by
mail.
Special Shareholder Services
To help make investing with us as easy as possible, and to help you build your
investment, we offer the following special services. You can obtain further
information about these programs by calling the BT Service Center at 1-800-
368-4031.
Exchange Privileges. You can exchange all or part of your shares for shares in
another BT Mutual Fund up to four times a year (from the date of your first
exchange). When you exchange shares, you are selling shares in one fund to
purchase shares in another. Before buying shares through an exchange, you
should obtain a copy of that fund's prospectus and read it carefully.
Please note the following conditions:
.The accounts between which the exchange is taking place must have the same
name, address and taxpayer ID number.
.You may make the exchange by phone, letter or wire, if your account has the
exchange by phone feature.
.If you are maintaining a taxable account, you may have to pay taxes on the
exchange.
.You will receive a written confirmation of each transaction from the BT
Service Center or your investment professional.
13
--
<PAGE>
A Detailed Look at the BT Institutional Asset Management Fund
The table below provides a picture of the Fund's financial performance for the
past five years. The information selected reflects financial results for a
single Fund share. The total returns in the table represent the rate of return
that an investor would have earned on an investment in the Fund, assuming
reinvestment of all dividends and distributions. This information has been
audited by PricewaterhouseCoopers LLP, whose report, along with the Fund's
financial statements, is included in the Fund's annual report. The annual
report is available free of charge by calling the BT Service Center at 1-800-
368-4031.
Financial Highlights
<TABLE>
<CAPTION>
For the years ended March 31,
- -------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share operating
performance:
Net asset value,
beginning of year $14.50 $12.05 $11.25 $ 9.99 $9.61
- -------------------------------------------------------------------------------
Income from investment
operations
Net investment income 0.47 0.37 0.38 0.41 0.36
- -------------------------------------------------------------------------------
Net realized gain (loss)
on investment
transactions 1.29 3.60 1.19 1.52 0.30
- -------------------------------------------------------------------------------
Total from investment
operations 1.76 3.97 1.57 1.93 0.66
- -------------------------------------------------------------------------------
Distributions to
shareholders
Net investment income (0.45) (0.37) (0.45) (0.42) (0.28)
- -------------------------------------------------------------------------------
Distribution in excess of
net investment income (0.27) -- -- -- --
- -------------------------------------------------------------------------------
Net realized gain (2.43) (1.15) (0.32) (0.25) --
- -------------------------------------------------------------------------------
Total distributions (3.15) (1.52) (0.77) (0.67) (0.28)
- -------------------------------------------------------------------------------
Net asset value, end of
year $13.11 $14.50 $12.05 $11.25 $9.99
- -------------------------------------------------------------------------------
Total investment return 12.83% 34.34% 14.31% 19.77% 7.13%
- -------------------------------------------------------------------------------
Supplemental data and
ratios:
Net assets, end of year
(000s omitted) $570,120 $496,798 $270,315 $183,767 $83,201
- -------------------------------------------------------------------------------
Ratios to average net
assets:
Net investment income 2.89% 2.97% 3.12% 3.99% 3.78%
- -------------------------------------------------------------------------------
Expenses, including
expenses of the Asset
Management Portfolio 0.60% 0.60% 0.60% 0.60% 0.60%
- -------------------------------------------------------------------------------
Decrease reflected in
above expense ratio due
to absorption of
expenses by Bankers
Trust 0.33% 0.32% 0.36% 0.39% 0.43%
- -------------------------------------------------------------------------------
Portfolio turnover
rate/1/ 109% 199% 137% 154% 92%
- -------------------------------------------------------------------------------
</TABLE>
/1/The portfolio turnover rate is the rate for the master portfolio in which
the Fund invests its assets.
14
--
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE>
[LOGO OF BANKERS TRUST APPEARS HERE]
- -- --
Additional information about the Fund's investments and performance is
available in the Fund's annual and semi-annual reports to shareholders. In
the Fund's annual report, you will find a discussion of the market
conditions and investment strategies that significantly affected the
Fund's performance during its last fiscal year.
You can find more detailed information about the Fund in the current
Statement of Additional Information, dated July 31, 1999, which we have
filed electronically with the Securities and Exchange Commission (SEC) and
which is incorporated by reference into this Prospectus. To receive your
free copy of the Statement of Additional Information, the annual or semi-
annual report, or if you have questions about investing in the Fund, write
to us at:
BT Service Center
P.O. Box 419210
Kansas City, MO 64141-6210
or call our toll-free number:
1-800-368-4031
You can find reports and other information about the Fund on the SEC
website (http://www.sec.gov), or you can get copies of this information,
after payment of a duplicating fee, by writing to the Public Reference
Section of the SEC, Washington, D.C. 20549-6009. Information about the
Fund, including their Statement of Additional Information, can be reviewed
and copied at the SEC's Public Reference Room in Washington, D.C. For
information on the Public Reference Room, call the SEC at 1-800-SEC-0330.
- -- --
BT Institutional Asset Management Fund CUSIP#055847404
BT Pyramid Mutual Funds 811-6576
Distributed by: 474PRO (7/99)
ICC Distributors, Inc.
Two Portland Square
Portland, ME 04101
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
July 31, 1999
BT Pyramid Mutual Funds
. BT Institutional Asset Management Fund
BT Pyramid Mutual Funds (the "Trust") is an open-end management investment
company that offers investors a selection of investment portfolios, each having
distinct investment objectives and policies. This Statement of Additional
Information relates only to the BT Institutional Asset Management Fund (the
"Fund"). The Fund seeks high total return with reduced risk over the long term
by allocating investments among stocks, bonds and short-term instruments.
As described in the Prospectus, the Trust seeks to achieve the investment
objective of the Fund by investing all the investable assets ("Assets") of the
Fund in the Asset Management Portfolio, (the "Portfolio"), an open-end
management investment company having the same investment objective as the Fund.
Shares of the Fund are sold by ICC Distributors, Inc. ("ICC Distributors"), the
Trust's distributor, to clients and customers (including affiliates and
correspondents) of Bankers Trust Company ("Bankers Trust"), the Portfolio's
investment adviser ("Adviser"), and to clients and customers of other
organizations.
The Trust's Prospectus for the Fund is dated July 31, 1999, and 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
Trust 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. Capitalized terms not otherwise
defined in this SAI have the meanings accorded to them in the Trust's
Prospectus. The financial statements for the Fund and the Portfolio for the
fiscal year ended March 31, 1999, are incorporated herein by reference to the
Annual Report to shareholders for the Fund and Portfolio dated March 31, 1999.
A copy of the Fund's and the Portfolio's Annual Report may be obtained without
charge by calling the Fund at the telephone number listed below.
BANKERS TRUST COMPANY
Investment Adviser of the Portfolio and Administrator
ICC Distributors, Inc.
Distributor
Two Portland Square
Portland, Maine 04101
1-800-730-1313
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
TABLE OF CONTENTS...................................................... 1
INVESTMENT OBJECTIVE AND POLICIES...................................... 1
Investment Objective................................................ 1
Currency Management................................................. 8
Futures Contracts and Options on Futures Contracts.................. 10
Additional Investment Techniques and Risks.......................... 15
Rating Services..................................................... 17
Investment Restrictions............................................. 17
Portfolio Transactions and Brokerage Commissions.................... 19
PERFORMANCE INFORMATION................................................ 21
Comparison of Fund Performance...................................... 22
Economic and Market Information..................................... 24
VALUATION OF SECURITIES................................................ 24
Redemptions and Purchases In Kind................................... 24
Trading in Foreign Securities....................................... 26
MANAGEMENT OF THE TRUST AND PORTFOLIO.................................. 26
Trustees of the Portfolio........................................... 26
Officers of the Trust and Portfolio................................. 26
Trustee Compensation Table.......................................... 27
Investment Adviser.................................................. 28
Administrator....................................................... 29
Banking Regulatory Matters.......................................... 30
Counsel and Independent Accountants................................. 30
ORGANIZATION OF THE TRUST.............................................. 30
TAXATION............................................................... 31
Taxation of the Fund................................................ 31
Distributions....................................................... 31
Taxation of the Portfolio........................................... 31
Foreign Withholding Taxes........................................... 31
Backup Withholding.................................................. 31
Foreign Shareholders................................................ 31
Other Taxation...................................................... 32
FINANCIAL STATEMENTS................................................... 32
APPENDIX............................................................... 33
</TABLE>
I
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
Investment Objective
The investment objective of the Fund is described in the Fund's Prospectus.
There can, of course, be no assurance that the Fund will achieve its investment
objective.
Investment Policies
The Fund seeks to achieve its investment objective by investing all of its
Assets in the Portfolio. The Trust may withdraw the Fund's investment from the
Portfolio at any time if the Board of Trustees of the Trust determines that it
is in the best interests of the Fund to do so.
Since the investment characteristics of the Fund will correspond directly to
those of the Portfolio, the following is a discussion of the various investments
of and techniques employed by the Portfolio.
High Yield Bonds. No more than 5% of the Portfolio's net assets (at the time of
investment) may be invested in lower rated (BB/Ba or lower), high yield bonds.
The Portfolio may retain any bond whose rating drops below investment grade if
it is in the best interest of the respective Fund's shareholders. Securities
rated BB/Ba by a Nationally Recognized Statistical Rating Organization ("NRSRO")
are considered to have speculative characteristics. See the Appendix for
further information on these securities.
Foreign Investments. The Portfolio focuses on U.S. investment opportunities,
but may invest a portion of its assets in foreign securities. The Portfolio
will not invest more than 25% of its total assets in equity securities of
foreign issuers under normal conditions. The Portfolio also will not invest
more than 25% of its total assets in each of the bond and short-term classes in
foreign currencies. Foreign securities of all types will normally constitute
less than 50% of the Portfolio's assets.
The Portfolio may invest in securities of foreign issuers directly or in the
form of American Depository Receipts ("ADRs"), Global Depository Receipts
("GDRs"), European Depositary Receipts ("EDRs") or other similar securities
representing securities of foreign issuers. These securities may not
necessarily be denominated in the same currency as the securities they
represent. Designed for use in U.S. and European securities markets,
respectively, ADRs, GDRs and EDRs are alternatives to the purchase of the
currencies, but are subject to the same risks as the foreign securities to which
they relate.
With respect to certain countries in which capital markets are either less
developed or not easily accessed, investments by the Portfolio may be made
through investment in other investment companies that in turn are authorized to
invest in the securities of such countries. Investment in other investment
companies is limited in amount by the Investment Company Act of 1940, as amended
(the "1940 Act"), will involve the indirect payment of a portion of the
expenses, including advisory fees, of such other investment companies and may
result in a duplication of fees and expenses.
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.
1
<PAGE>
Commercial Paper. Commercial paper consists of short-term (usually from 1 to
270 days) unsecured promissory notes issued by corporations in order to finance
their current operations. A variable amount master demand note (which is a type
of commercial paper) represents a direct borrowing arrangement involving
periodically fluctuating rates of interest under a letter agreement between a
commercial paper issuer and an institutional lender pursuant to which the lender
may determine to invest varying amounts.
For a description of commercial paper ratings, see the Appendix.
TBA Purchase Commitments. The Portfolio may enter into TBA purchase commitments
to purchase securities for a fixed price at a future date, typically not
exceeding 45 days. TBA purchase commitments may be considered securities in
themselves, and involve a risk of loss if the value of the security to be
purchased declines prior to settlement date, which risk is in addition to the
risk of decline in the value of the Portfolio's other assets. Unsettled TBA
purchase commitments are valued at the current market value of the underlying
securities.
Illiquid Securities. Historically, illiquid securities have included securities
subject to contractual or legal restrictions on resale because they have not
been registered under the Securities Act of 1933, as amended (the "1933 Act"),
securities which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven calendar days. Securities which have not
been registered under the 1933 Act are referred to as private placements or
restricted securities and are purchased directly from the issuer or in the
secondary market. Mutual funds do not typically hold a significant amount of
these restricted or other illiquid securities because of the potential for
delays on resale and uncertainty in valuation. Limitations on resale may have
an adverse effect on the marketability of portfolio securities and a mutual fund
might be unable to dispose of restricted or other illiquid securities promptly
or at reasonable prices and might thereby experience difficulty satisfying
redemptions within seven calendar days. A mutual fund might also have to
register such restricted securities in order to dispose of them resulting in
additional expenses and delay. Adverse market conditions could impede such a
public offering of securities.
In recent years, however, a large institutional market has developed for certain
securities that are not registered under the 1933 Act, including repurchase
agreements, commercial paper, foreign securities, municipal securities and
corporate bonds and notes. Institutional investors depend on an efficient
institutional market in which the unregistered security can be readily resold or
on an issuer's ability to honor a demand for repayment. The fact that there are
contractual or legal restrictions on resale of such investments to the general
public or to certain institutions may not be indicative of their liquidity.
The Securities and Exchange Commission (the "SEC") has adopted Rule 144A, which
allows a broader institutional trading market for securities otherwise subject
to restriction on their resale to the general public. Rule 144A establishes a
"safe harbor" from the registration requirements of the 1933 Act 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 regulation and the
development of automated systems for the trading, clearance and settlement of
unregistered securities of domestic and foreign issuers, such as the PORTAL
System sponsored by the National Association of Securities Dealers, Inc.
Provided that a dealer or institutional trading market in such securities
exists, these restricted securities are treated as exempt from the 15% limit on
illiquid securities. Under the supervision of the Board of Trustees of the
Portfolio, The Adviser determines the liquidity of restricted securities and,
through reports from the Adviser, the Board will monitor trading activity in
restricted securities. In reaching liquidity decisions, the Adviser will
consider, among other things, the following factors: (1) the frequency of
trades and quotes for the security; (2) the number of dealers and other
potential purchasers wishing to purchase or sell the security; (3) dealer
undertakings to make a market in
2
<PAGE>
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). Because Rule 144A is relatively new,
it is not possible to predict how these markets will develop. If institutional
trading in restricted securities were to decline, the liquidity of the Portfolio
could be adversely affected.
Lending of Portfolio Securities. The Portfolio has the authority to lend up to
30% of its assets (taken at market value) to brokers, dealers and other
financial organizations. The Portfolio will not lend securities to the Adviser,
ICC Distributors or their affiliates. By lending its securities, the Portfolio
may increase its income by continuing to receive payments in respect of
dividends and interest on the loaned securities as well as by either investing
the cash collateral in short-term securities or obtaining yield in the form of a
fee paid by the borrower when irrevocable letters of credit and U.S. government
obligations are used as collateral. The Portfolio will adhere to the following
conditions whenever its securities are loaned: (i) the Portfolio must receive
at least 100% collateral consisting of cash, securities issued or guaranteed by
the U.S. government, its agencies or instrumentalities or by letter of credit at
least equal to the market value of the securities loaned plus accrued interest
from the borrower; (ii) the borrower must increase this collateral whenever the
market value of the securities including accrued interest rises above the level
of the collateral; (iii) the Portfolio must be able to terminate the loan at any
time; (iv) the Portfolio must receive substitute payments in respect of all
dividends, interest or other distributions on the loaned securities; and (v)
voting rights on the loaned securities may pass to the borrower; provided,
however, that if a material event adversely affecting the investment occurs, the
Board of Trustees must retain the right to terminate the loan and recall and
vote the securities.
When-Issued and Delayed Delivery Securities. The Portfolio may purchase
securities on a when-issued or delayed delivery basis. Delivery of and payment
for these securities may take place as long as a month or more after the date of
the purchase commitment. The value of these securities is subject to market
fluctuations during this period and no income accrues to the Portfolio until
settlement takes place. The Portfolio identifies on its books cash or liquid
securities in an amount at least equal to these commitments.
Short Sales. The Portfolio may engage in short sales with respect to securities
that it owns or has the right to obtain (for example, through conversion of a
convertible bond). These transactions, known as short sales "against the box,"
allow the Portfolio to hedge against price fluctuations by locking in a sale
price for securities it does not wish to sell immediately.
Indexed Securities. The Portfolio may invest in indexed securities whose value
depends on the price of foreign currencies, securities indices or other
financial values or statistics. Examples include debt securities whose value at
maturity is determined by reference to the relative prices of various currencies
or to the price of a stock index. These securities may be positively or
negatively indexed; that is, their value may increase or decrease if the
underlying instrument appreciates.
Repurchase Agreements. The Portfolio may invest in repurchase agreements. In a
repurchase agreement the Portfolio buys a security and simultaneously agrees to
sell it back at a higher price. In the event of the bankruptcy of the other
party to a repurchase agreement or a securities loan, the Portfolio could
experience delays in recovering either its cash or selling securities it lent.
To the extent that, in the meantime, the value of the securities repurchased had
decreased or the value of the securities had increased, the Portfolio could
experience a loss. In all cases, the Adviser must find the creditworthiness of
the other party to the transaction satisfactory. A repurchase agreement is
considered a collateralized loan under the 1940 Act.
Zero Coupon Debt Securities. Zero coupon debt securities do not make regular
interest payments. Instead they are sold at a deep discount from their face
value. Because a zero coupon bond does not pay current income, its price
3
<PAGE>
can be volatile when interest rates change. In calculating its dividends, the
Fund takes into account as income a portion of the difference between a zero
coupon bond's purchase price and its face value.
Government Securities. Government securities may or may not be backed by the
full faith and credit of the U.S. government. U.S. Treasury bonds, notes and
bills and certain agency securities, such as those issued by the Federal Housing
Administration, are backed by the full faith and credit of the U.S. government
and are the highest quality government securities. The Portfolio may also
invest a substantial portion of its portfolio in securities issued by government
agencies or instrumentalities (such as executive departments of the U.S.
government or independent Federal organizations supervised by Congress), which
may have different degrees of government backing but which are not backed by the
full faith and credit of the U.S. government. There is no guarantee that the
government will support these types of securities, and therefore they involve
more risk than other government obligations.
Mortgage-Backed Securities. Mortgage-backed securities are securities
representing interests in a pool of mortgages. Principal and interest payments
made on the mortgages in the underlying mortgage pool are passed through to the
investor. Unscheduled prepayments of principal shorten the securities' weighted
average life and may lower their total return. When a mortgage in the
underlying pool is prepaid, an unscheduled principal prepayment is passed
through to the investor. This principal is returned to the investor at par. As
a result, if a mortgage security were trading at a premium, its total return
would be lowered by prepayments, and if a mortgage security were trading at a
discount, its total return would be increased by prepayments. The value of
these securities also may change because of changes in the market's perception
of the creditworthiness of the Federal agency that issued them. In addition,
the mortgage securities market in general may be adversely affected by changes
in governmental regulation or tax policies.
Collateralized Mortgage Obligations ("CMOs"). CMOs are pass-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. CMOs may be issued by governmental or non-governmental entities such
as banks and other mortgage lenders. Non-government securities may offer a
higher yield but also may be subject to greater price fluctuation than
government securities.
Asset-Backed Securities. Asset-backed securities consist of undivided
fractional interests in pools of consumer loans (unrelated to mortgage loans)
held in a trust. Payments of principal and interest are passed through to
certificate-holders and are typically supported by some form of credit
enhancement, such as a letter of credit, surety bond, limited guarantee or
senior/subordination. The degree of credit enhancement varies, but generally
amounts to only a fraction of the asset-backed security's par value until
exhausted. If the credit enhancement is exhausted, certificate-holders may
experience losses or delays in payment if the required payments of principal and
interest are not made to the trust with respect to the underlying loans. The
value of the securities also may change because of changes in the market's
perception of creditworthiness of the servicing agent for the loan pool, the
originator of the loans or the financial institution providing the credit
enhancement. Asset-backed securities are ultimately dependent upon payment of
consumer loans by individuals, and the certificate-holder generally has no
recourse to the entity that originated the loans. The underlying loans are
subject to pre-payments which shorten the securities' weighted average life and
may lower their return. As prepayments flow through at par, total returns would
be affected by the prepayments: if a security were trading at a discount, its
total return would be increased by prepayments.
Swap Agreements. The Portfolio may enter into swap agreements which are
contracts entered into by two parties, primarily institutional investors, for
periods ranging from a few weeks to more than one year. In a standard swap
transaction, two parties agree to exchange the returns (or differentials in
rates of return) earned or realized on particular predetermined investments or
instruments. The gross returns to be exchanged or swapped between the parties
are calculated with respect to a notional amount, i.e., the return on or
increase in value of a particular dollar amount invested at a particular
interest rate, in a particular foreign currency, or in a basket of securities
representing a particular index. The notional amount of the swap agreement is
only a fictive basis on which to calculate the
4
<PAGE>
obligations which the parties to a swap agreement have agreed to exchange. The
Portfolio's obligations (or rights) under a swap agreement will generally be
equal only to the net amount to be paid or received under the agreement based on
the relative values of the positions held by each party to the agreement (the
"net amount"). The Portfolio's obligations under a swap agreement will be
accrued daily (offset against any amounts owing to the Portfolio) and any
accrued but unpaid net amounts owed to a swap counter-party will be covered by
assets identified on the Portfolio's books consisting of cash or liquid
securities to avoid any potential leveraging of the Portfolio's portfolio.
Whether the use of swap agreements will be successful in furthering the
Portfolio's investment objective will depend on the Adviser's ability to
correctly predict whether certain types of investments are likely to produce
greater returns than other investments. Swap agreements may be considered
illiquid because they are two party contracts and because they may have terms of
greater than seven days. Moreover, the Portfolio bears the risk of loss of the
amount expected to be received under a swap agreement in the event of the
default or bankruptcy of a swap agreement counter-party. The Portfolio will
minimize this risk by entering into agreements that mark to market no less
frequently than quarterly. In addition, the Portfolio will enter into swap
agreements only with counter-parties that would be eligible for consideration as
repurchase agreement counter-parties under the Portfolio's repurchase agreement
guidelines. Certain restrictions imposed on the Portfolios by the Internal
Revenue Code of 1986, as amended (the "Code") may limit the Portfolios' ability
to use swap agreements. The swaps market is a relatively new market and is
largely unregulated. It is possible that developments in the swaps market,
including potential government regulation, could adversely affect the
Portfolio's ability to terminate existing swap agreements or to realize amounts
to be received under such agreements. Swap agreements also bear the risk that
the Portfolio will not be able to meet its obligation to the counter-party.
This risk will be mitigated by investing the Portfolio in the specific asset for
which it is obligated to pay a return.
Certain swap agreements are exempt from most provisions of the Commodity
Exchange Act (the "CEA") and, therefore, are not regulated as futures or
commodity option transactions under the CEA, pursuant to regulations approved by
the Commodity Futures Trading Commission (the "CFTC") effective February 22,
1993. To qualify for this exemption, a swap agreement must be entered into by
eligible participants, which includes the following, provided the participant's
total assets exceed established levels: a bank or trust company, savings
association or credit union, insurance company, investment company subject to
regulation under the 1940 Act, commodity pool, corporation, partnership,
proprietorship, organization, trust or other entity, employee benefit plan,
governmental entity, broker-dealer, futures commission merchant, natural person,
or regulated foreign person. To be eligible, natural persons and most other
entities must have total assets exceeding $10 million; commodity pools and
employee benefit plans must have asset exceeding $5 million. In addition, an
eligible swap transaction must meet three conditions. First, the swap agreement
may not be part of a fungible class of agreements that are standardized as to
their material economic terms. Second, the creditworthiness of parties with
actual or potential obligations under the swap agreement must be a material
consideration in entering into or determining the terms of the swap agreement,
including pricing, cost or credit enhancement terms. Third, swap agreements may
not be entered into and traded on or through a multilateral transaction
execution facility.
This exemption is not exclusive, and participants may continue to rely on
existing exclusions for swaps, such as the Policy Statement issued in July 1989
which recognized a "safe harbor" for swap transactions from regulation as
futures or commodity option transactions under the CEA or its regulations. The
Policy Statement applies to swap transactions settled in cash that: (i) have
individually tailored terms; (ii) lack exchange style offset and the use of a
clearing organization or margin system; (iii) are undertaken in conjunction with
a line of business; and (iv) are not marketed to the public.
Options on Securities. The Portfolio may write and purchase put and call options
on stocks. A call option gives the purchaser of the option the right to buy,
and obligates the writer to sell, the underlying stock at the exercise price at
any time during the option period. Similarly, a put option gives the purchaser
of the option the right to sell, and obligates the writer to buy, the underlying
stock at the exercise price at any time during the option period.
5
<PAGE>
The Portfolio may write (sell) covered call and put options to a limited extent
on its portfolio securities ("covered options") in an attempt to increase
income. However, the Portfolio may forgo the benefits of appreciation on
securities sold or may pay more than the market price on securities acquired
pursuant to call and put options written by the Portfolio.
When the Portfolio writes a covered call option, it gives the purchaser of the
option the right to buy the underlying security at the price specified in the
option (the "exercise price") by exercising the option at any time during the
option period. If the option expires unexercised, the Portfolio will realize
income in an amount equal to the premium received for writing the option. If
the option is exercised, a decision over which the Portfolio has no control, the
Portfolio must sell the underlying security to the option holder at the exercise
price. By writing a covered call option, the Portfolio forgoes, in exchange for
the premium less the commission ("net premium"), the opportunity to profit
during the option period from an increase in the market value of the underlying
security above the exercise price.
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." 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
by the Portfolio is included in the liability section of the Portfolio's
Statement of Assets and Liabilities as a deferred credit. The amount of the
deferred credit will be subsequently marked to market to reflect the current
market value of the option written. The current market value of a traded option
is the last sale price or, in the absence of a sale, the mean between the
closing bid and asked price. If an option expires on its stipulated expiration
date or if the Portfolio enters into a closing purchase transaction, the
Portfolio will realize a gain (or loss if the cost of a closing purchase
transaction exceeds the premium received when the option was sold), and the
deferred credit related to such option will be eliminated. If a call option is
exercised, the Portfolio will realize a gain or loss from the sale of the
underlying security and the proceeds of the sale will be increased by the
premium originally received. The writing of covered call options may be deemed
to involve the pledge of the securities against which the option is being
written. Securities against which call options are written will be identified
on the Portfolio's books.
The Portfolio may purchase call and put options on any securities in which it
may invest. The Portfolio would normally purchase a call option in anticipation
of an increase in the market value of such securities. The purchase of a call
option would entitle the Portfolio, in exchange for the premium paid, to
purchase a security at a specified price during the option period. The
Portfolio would ordinarily have a gain if the value of the securities increased
above the exercise price sufficiently to cover the premium and would have a loss
if the value of the securities remained at or below the exercise price during
the option period.
The Portfolio would normally purchase put options in anticipation of a decline
in the market value of securities in its portfolio ("protective puts") or
securities of the type in which it is permitted to invest. The purchase of a
put option would entitle the Portfolio, in exchange for the premium paid, to
sell a security, which may or may not be held in the Portfolio's portfolio, at a
specified price during the option period. The purchase of protective puts is
designed merely to offset or hedge against a decline in the market value of the
Portfolio's portfolio securities. Put options also may be purchased by the
Portfolio for the purpose of affirmatively benefiting from a decline in the
price of securities which the Portfolio does not own. The Portfolio would
ordinarily recognize a gain if the value of the securities decreased below the
exercise price sufficiently to cover the premium and would recognize a loss if
the value of the securities remained at or above the exercise price. Gains and
losses on the purchase of protective put options would tend to be offset by
countervailing changes in the value of underlying portfolio securities.
6
<PAGE>
The Portfolio has adopted certain other non-fundamental policies concerning
option transactions which are discussed below.
The hours of trading for options on securities may not conform to the hours
during which the underlying securities are traded. To the extent that the
option markets close before the markets for the underlying securities,
significant price and rate movements can take place in the underlying securities
markets that cannot be reflected in the option markets. It is impossible to
predict the volume of trading that may exist in such options, and there can be
no assurance that viable exchange markets will develop or continue.
The Portfolio may engage in over-the-counter ("OTC") 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 OTC option
positions is more limited than with exchange-traded option positions because the
predominant market is the issuing broker rather than an exchange, and may
involve the risk that broker-dealers participating in such transactions will not
fulfill their obligations. To reduce this risk, the Portfolio will purchase
such options only from broker-dealers who are primary government securities
dealers recognized by the Federal Reserve Bank of New York and who agree to (and
are expected to be capable of) entering into closing transactions, although
there can be no guarantee that any such option will be liquidated at a favorable
price prior to expiration. The Adviser will monitor the creditworthiness of
dealers with whom the Portfolio enters into such options transactions under the
general supervision of the Portfolios' Trustees.
The Portfolio intends to treat OTC options purchased and the assets used to
"cover" OTC options written as not readily marketable and therefore subject to
the limitations described in "Investment Restrictions" in the SAI.
Options on Securities Indices. The Portfolio may purchase and write put and
call options on stock indices listed on stock exchanges. A stock index
fluctuates with changes in the market values of the stocks included in the
index. Options on stock indices are generally similar to options on stock
except that the delivery requirements are different. Instead of giving the right
to take or make delivery of stock at a specified price, an option on a stock
index gives the holder the right to receive a cash "exercise settlement amount"
equal to (a) the amount, if any, by which the fixed exercise price of the option
exceeds the closing value of the underlying index on the date of exercise,
multiplied by (b) a fixed "index multiplier." Receipt of this cash amount will
depend upon the closing level of the stock index upon which the option is based
being greater than, in the case of a call, or less than, in the case of a put,
the exercise price of the option. The amount of cash received will be equal to
such difference between the closing price of the index and the exercise price of
the option expressed in dollars times a specified multiple. The writer of the
option is obligated, in return for the premium received, to make delivery of
this amount. The writer may offset its position in stock index options prior to
expiration by entering into a closing transaction on an exchange or the option
may expire unexercised. Such options will be used for the purposes described
above under "Options on Securities."
Because the value of an index option depends upon movements in the level of the
index rather than the price of a particular stock, whether the Portfolio will
realize a gain or loss from the purchase or writing of options on an index
depends upon movements in the level of stock prices in the stock market
generally or, in the case of certain indices, in an industry or market segment,
rather than movements in the price of a particular stock. Accordingly,
successful use by the Portfolio of options on stock indices will be subject to
the Adviser's ability to predict correctly movements in the direction of the
stock market generally or of a particular industry. This requires different
skills and techniques than predicting changes in the price of individual stocks.
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.
7
<PAGE>
Use of options on securities indices also entails the risk that trading in such
options may be interrupted if trading in certain securities included in the
index is interrupted. The Portfolio will not purchase such options unless the
Adviser believes the market is sufficiently developed such that the risk of
trading in such options is no greater than the risk of trading in options on
securities.
Price movements in the Portfolio's portfolio 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.
Currency Management
General. In connection with the Portfolio's investments denominated in foreign
currencies, the Adviser may choose to utilize a variety of currency management
strategies. The Adviser seeks to take advantage of different yield, risk, and
return characteristics that different currencies, currency denominations, and
countries can provide to U.S. investors. In doing so, the Adviser will consider
such factors as the outlook for currency relationships, current and anticipated
interest rates, levels of inflation within various countries, prospects for
relative economic growth, and government policies influencing currency exchange
rates and business conditions.
Forward Foreign Currency Exchange Contracts. Because the Portfolio buys and
sells securities denominated in currencies other than the U.S. dollar and
receives interest, dividends and sales proceeds in currencies other than the
U.S. dollar, the Portfolios from time to time may enter into foreign currency
exchange transactions to convert foreign currencies to and from the U.S. dollar.
The Portfolio either enters into these transactions on a spot (i.e. cash) basis
at the spot rate prevailing in the foreign currency exchange market or uses
forward contracts to purchase or sell foreign currencies.
A forward foreign currency exchange contract is an obligation by the Portfolio
to purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract. Forward foreign currency exchange
contracts establish an exchange rate at a future date. These contracts are
transferable in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. A forward foreign currency
exchange contact generally has no deposit requirement and is traded at a net
price without commission. Neither spot transactions nor forward foreign
currency exchange contracts eliminate fluctuations in the prices of the
Portfolio's securities or in foreign exchange rates, or prevent loss if the
prices of these securities should decline.
The Portfolio may enter into foreign currency hedging transactions in an attempt
to protect against changes in foreign currency exchange rates between the trade
and settlement dates of specific securities transactions or changes in foreign
currency exchange rates that would adversely affect a portfolio position or an
anticipated investment position or an anticipated investment position. Since
consideration of the prospect for currency parties will be incorporated into the
Adviser's long-term investment decisions, the Portfolio will not routinely enter
into foreign currency hedging transactions with respect to security
transactions; however, the Adviser believes that it is important to have
flexibility to enter into foreign currency hedging transactions when it
determines that the transactions would be in the Portfolio's best interest.
Although these transactions tend to minimize the risk of loss due to a decline
in the value of the hedged currency, at the same time they tend to limit any
potential gain that might be realized should the value of the hedged currency
increase. The precise matching of the forward contract amounts and the value of
the securities involved will not generally be possible because the future value
of such securities in foreign currencies will change as a consequence of market
movements in the value of such securities between the date the forward contract
is entered into and the date it matures. The projection of currency market
movements is extremely difficult, and the successful execution of a hedging
strategy is highly uncertain.
8
<PAGE>
While these contracts are not presently regulated by the CFTC, the CFTC may in
the future assert authority to regulate forward contracts. In such event the
Portfolio's ability to utilize forward contracts in the manner set forth in the
Prospectus may be restricted. Forward contracts may reduce the potential gain
from a positive change in the relationship between the U.S. dollar and foreign
currencies. Unanticipated changes in currency prices may result in poorer
overall performance for the Portfolio than if it had not entered into such
contracts. The use of foreign currency forward contracts may not eliminate
fluctuations in the underlying U.S. dollar equivalent value of the prices of or
rates of return on the Portfolio's foreign currency denominated portfolio
securities and the use of such techniques will subject the Portfolio to certain
risks.
The matching of the increase in value of a forward contract and the decline in
the U.S. dollar equivalent value of the foreign currency denominated asset that
is the subject of the hedge generally will not be precise. In addition, the
Portfolio may not always be able to enter into foreign currency forward
contracts at attractive prices and this will limit the Portfolio's ability to
use such contract to hedge or cross-hedge its assets. Also, with regard to the
Portfolio's use of cross-hedges, there can be no assurance that historical
correlation's between the movement of certain foreign currencies relative to the
U.S. dollar will continue. Thus, at any time poor correlation may exist between
movements in the exchange rates of the foreign currencies underlying the
Portfolio's cross-hedges and the movements in the exchange rates of the foreign
currencies in which the Portfolio's assets that are the subject of such cross-
hedges are denominated.
Options on Foreign Currencies. The Portfolio may write covered put and call
options and purchase put call options on foreign currencies for the purpose of
protecting against declines in the dollar value of portfolio securities and
against increases in the dollar cost of securities to be acquired. The
Portfolio may use options on currencies to cross-hedge, which involves writing
or purchasing options on one currency to hedge against changes in exchange rates
for a different, but related currency. As with other types of options, however,
the writing of an option on foreign currency may be used to hedge against
fluctuations in exchange rates although, in the even of exchange rate movements
adverse to the Portfolio's position, it may forfeit the entire amount of the
premium plus related transaction costs. In addition the Portfolio may purchase
call options on currency when the Adviser anticipates that the currency will
appreciate in value.
There is no assurance that a liquid secondary market on an options exchange will
exist for any particular option, or at any particular time. If the Portfolio is
unable to effect a closing purchase transaction with respect to covered options
it has written, the Portfolio will not be able to sell the underlying currency
or dispose of assets identified on the Portfolio's books until the options
expire or are exercised. Similarly, if the Portfolio is unable to effect a
closing sale transaction with respect to options it has purchased, it would have
to exercise the options in order to realize any profit and will incur
transaction costs upon the purchase or sale of underlying currency. The
Portfolio pays brokerage commissions or spreads in connection with its options
transactions.
As in the case with forward contracts, certain options on foreign currencies are
traded over the counter and involve liquidity and credit risks which may not be
present in the case of exchange traded currency options. The Portfolio's
ability to terminate OTC options will be more limited than with exchange traded
options. It is also possible that broker dealers participating in OTC options
transactions will not fulfill their obligations. Until such time as the staff
of the SEC changes its position, the Portfolio will treat purchased OTC options
and assets used to cover written OTC options as illiquid securities. With
respect to options written with primary dealers in U.S. Government securities
pursuant to an agreement requiring a closing purchase transaction at a formula
price, the amount of illiquid securities may be calculated with reference to the
repurchase formula.
The Portfolio may purchase options on foreign currencies for hedging purposes in
a manner similar to that in which futures contracts on foreign currencies, or
forward contracts, will be utilized. For example, a decline in the dollar value
of a foreign currency in which portfolio securities are denominated will reduce
the dollar value of such securities, even if their value in the foreign currency
remains constant. In order to protect against such diminution
9
<PAGE>
in the value of portfolio securities, the Portfolio may purchase put options on
the foreign currency. If the value of the currency does decline, the Portfolio
will have the right to sell such currency for a fixed amount in dollars and will
thereby offset, in whole or in part, the adverse effect on its portfolio which
otherwise would have resulted.
Conversely, where a rise in the dollar value of a currency in which securities
to be acquired are denominated is projected, thereby increasing the cost of such
securities, the Portfolio may purchase call options thereon. The purchase of
such options could offset, at least partially, the effects of the adverse
movements in exchange rates. As in the case of other types of options, however,
the benefit to the Portfolio deriving from purchases of foreign currency options
will be reduced by the amount of the premium and related transaction costs. In
addition, where currency exchange rates do not move in the direction or to the
extent anticipated, the Portfolio could sustain losses on transactions in
foreign currency options which would require it to forego a portion or all of
the benefits of advantageous changes in such rates.
The Portfolio may write options on foreign currencies for the same types of
hedging purposes. For example, where the Portfolio anticipates a decline in the
dollar value of foreign currency denominated securities due to adverse
fluctuations in exchange rates it could, instead of purchasing a put option,
write a call option on the relevant currency. If the expected decline occurs,
the options will most likely not be exercised, and the diminution in value of
portfolio securities will be offset by the amount of the premium received.
Similarly, instead of purchasing a call option to hedge against an anticipated
increase in the dollar cost of securities to be acquired, the Portfolio could
write a put option on the relevant currency which, if rates move in the manner
projected, will expire unexercised and allow the Portfolio to hedge such
increased cost up to the amount of the premium. As in the case of other types
of options, however, the writing of a foreign currency option will constitute
only a partial hedge up to the amount of the premium, and only if rates move in
the expected direction. If this does not occur, the option may be exercised and
the Portfolio would be required to purchase or sell the underlying currency at a
loss which may not be offset by the amount of the premium. Through the writing
of options on foreign currencies, the Portfolio also may be required to forego
all or a portion of the benefits which might otherwise have been obtained from
favorable movements in exchange rates.
The Portfolio intends to write covered call options on foreign currencies. A
call option written on a foreign currency by the Portfolio is "covered" if the
Portfolio owns the underlying foreign currency covered by the call or has an
absolute and immediate right to acquire that foreign currency without additional
cash consideration (or for additional cash consideration identified on the
Portfolio's books) upon conversion or exchange of other foreign currency held in
its portfolio. A call option is also covered if the Portfolio has a call on the
same foreign currency and in the same principal amount as the call written where
the exercise price of the call held (a) is equal to or less than the exercise
price of the call written or (b) is greater than the exercise price of the call
written if the difference is maintained by the Portfolio in cash, U.S.
government securities and other high quality liquid debt securities and
identified on the Portfolio's books.
The Portfolio also intends to write call options on foreign currencies that are
not covered for cross-hedging purposes. A call option on a foreign currency is
for cross-hedging purposes if it is not covered, but is designed to provide a
hedge against a decline in the U.S. dollar value of a security which the
Portfolio owns or has the right to acquire and which is denominated in the
currency underlying the option due to an adverse change in the exchange rate.
In such circumstances, the Portfolio collateralizes the option by identifying on
the Portfolio's books cash or U.S. government securities or other high quality
liquid debt securities in an amount not less than the value of the underlying
foreign currency in U.S. dollars priced daily.
Futures Contracts and Options on Futures Contracts
General. The Portfolio may buy and sell options and futures to manage its
exposure to changing interest rates, security prices and currency exchange
rates, and as an efficient means of managing allocations between asset
10
<PAGE>
classes. The Portfolio may invest in options and futures, based on any type of
security or index related to the Portfolio's investments, including options and
futures traded on foreign exchanges.
Some options and futures strategies, including selling futures, buying puts, and
writing calls, hedge the Portfolios' investments against price fluctuations.
Other strategies, including buying futures, including buying futures, writing
puts, and buying calls, tends to increase market exposure. Options and futures
may be combined with each other, or with forward contracts, in order to adjust
the risk and return characteristics of an overall strategy.
The successful use of such instruments draws upon the Adviser's skill and
experience with respect to such instruments and usually depends on the Adviser's
ability to forecast interest rate and currency exchange rate movements
correctly. Should interest or exchange rates move in an unexpected manner, the
Portfolio may not achieve the anticipated benefits of futures contracts or
options on futures contracts or may realize losses and thus will be in a worse
position than if such strategies had not been used. In addition, the
correlation between movements in the price of futures contracts or options on
futures contracts and movements in the price of the securities and currencies
hedged or used for cover will not be perfect and could produce unanticipated
losses.
The Portfolio may not purchase or sell a futures contract or option thereon if,
immediately thereafter, its margin deposits on its outstanding futures contracts
(other than futures contracts entered into for bona fide hedging purposes) and
premiums paid for options thereon would exceed 5% of the market value of the
Portfolio's total assets.
Futures Contracts. The Portfolio may enter into contracts for the purchase or
sale for future delivery of fixed-income securities or foreign currencies, or
contracts based on financial indices including any index of U.S. government
securities, foreign government securities or corporate debt securities. U.S.
futures contracts have been designed by exchanges which have been designated
"contracts markets" by the CFTC, and must be executed through a futures
commission merchant, or brokerage firm, which is a member of the relevant
contract market. Futures contracts trade on a number of exchange markets, and,
through their clearing corporations, the exchanges guarantee performance of the
contracts as between the clearing members of the exchange. The Portfolio may
enter into futures contracts which are based on debt securities that are backed
by the full faith and credit of the U.S. government, such as long-term U.S.
Treasury Bonds, Treasury Notes, Government National Mortgage Association
modified pass-through mortgage-backed securities and three-month U.S. Treasury
Bills. The Portfolio may also enter into futures contracts which are based on
bonds issued by entities other than the U.S. government.
At the same time a futures contract is purchased or sold, the Portfolio must
allocate cash or securities as a deposit payment ("initial deposit"). It is
expected that the initial deposit would be approximately 1 1/2% to 5% of a
contract's face value. Daily thereafter, the futures contract is valued and the
payment of "variation margin" may be required, since each day the Portfolio
would provide or receive cash that reflects any decline or increase in the
contract's value.
At the time of delivery of securities pursuant to such a contract, adjustments
are made to recognize differences in value arising from the delivery of
securities with a different interest rate from that specified in the contract.
In some (but not many) cases, securities called for by a futures contract may
not have been issued when the contract was written.
Although futures contracts by their terms call for the actual delivery or
acquisition of securities, in most cases the contractual obligation is fulfilled
before the date of the contract without having to make or take delivery of the
securities. The offsetting of a contractual obligation is accomplished by
buying (or selling, as the case may be) on a commodities exchange an identical
futures contract calling for delivery in the same month. Such a transaction,
which is effected through a member of an exchange, cancels the obligation to
make or take delivery of the securities. Since all transactions in the futures
market are made, offset or fulfilled through a clearinghouse
11
<PAGE>
associated with the exchange on which the contracts are traded, the Portfolio
will incur brokerage fees when it purchases or sells futures contracts.
The purpose of the acquisition or sale of a futures contract, in the case of the
Portfolio which holds or intends to acquire fixed-income securities, is to
attempt to protect the Portfolio from fluctuations in interest or foreign
exchange rates without actually buying or selling fixed-income securities or
foreign currencies. For example, if interest rates were expected to increase,
the Portfolio might enter into futures contracts for the sale of debt
securities. Such a sale would have much the same effect as selling an
equivalent value of the debt securities owned by the Portfolio. If interest
rates did increase, the value of the debt security in the Portfolio would
decline, but the value of the futures contracts to the Portfolio would increase
at approximately the same rate, thereby keeping the net asset value of the
Portfolio from declining as much as it otherwise would have. The Portfolio
could accomplish similar results by selling debt securities and investing in
bonds with short maturities when interest rates are expected to increase.
However, since the futures market is more liquid than the cash market, the use
of futures contracts as an investment technique allows the Portfolio to maintain
a defensive position without having to sell its portfolio securities.
Similarly, when it is expected that interest rates may decline, futures
contracts may be purchased to attempt to hedge against anticipated purchases of
debt securities at higher prices. Since the fluctuations in the value of
futures contracts should be similar to those of debt securities, the Portfolio
could take advantage of the anticipated rise in the value of debt securities
without actually buying them until the market had stabilized. At that time, the
futures contracts could be liquidated and the Portfolio could then buy debt
securities on the cash market. To the extent the Portfolio enters into futures
contracts for this purpose, the assets in the segregated asset account
maintained to cover the Portfolio's obligations with respect to such futures
contracts will consist of cash, cash equivalents or high quality liquid debt
securities from its portfolio in an amount equal to the difference between the
fluctuating market value of such futures contracts and the aggregate value of
the initial and variation margin payments made by the Portfolio with respect to
such futures contracts.
The ordinary spreads between prices in the cash and futures market, due to
differences in the nature of those markets, are subject to distortions. First,
all participants in the futures market are subject to initial deposit and
variation margin requirements. Rather than meeting additional variation margin
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced, thus producing distortion. Third, from
the point of view of speculators, the margin deposit requirements in the futures
market are less onerous than margin requirements in the securities market.
Therefore, increased participation by speculators in the futures market may
cause temporary price distortions. Due to the possibility of distortion, a
correct forecast of general interest rate trends by the Adviser may still not
result in a successful transaction.
In addition, futures contracts entail risks. Although the Adviser believes that
use of such contracts will benefit the Portfolio, if the Adviser's investment
judgment about the general direction of interest rates is incorrect, the
Portfolio's overall performance would be poorer than if it had not entered into
any such contract. For example, if the Portfolio has hedged against the
possibility of an increase in interest rates which would adversely affect the
price of debt securities held in its portfolio and interest rates decrease
instead, the Portfolio will lose part or all of the benefit of the increased
value of its debt securities which it has hedged because it will have offsetting
losses in its futures positions. In addition, in such situations, if the
Portfolio has insufficient cash, it may have to sell debt securities from its
portfolio to meet daily variation margin requirements. Such sales of bonds may
be, but will not necessarily be, at increased prices which reflect the rising
market. The Portfolio may have to sell securities at a time when it may be
disadvantageous to do so.
12
<PAGE>
Futures Contracts on Securities Indices. The Portfolio may enter into contracts
providing for the marketing and acceptance of a cash settlement based upon
changes in the value of an index of securities ("futures contacts"). This
investment technique may be used to hedge against anticipated future change in
general market prices which otherwise might either adversely affect the value of
securities held by the Portfolio or adversely affect the prices of securities
which are intended to be purchased at a later date for the Portfolio or as an
efficient means of managing allocation between asset classes. A futures
contract may also be entered into to close out or offset an existing futures
position.
When used for hedging purposes, a futures contracts involves the establishment
of a position which will move in a direction opposite to that of the investment
being hedged. If these hedging transactions are successful, the futures
positions taken for the Portfolio will rise in value by an amount which
approximately offsets the decline in value of the portion of the Portfolio's
investments that are being hedged. Should general market prices move in an
unexpected manner, the full anticipated benefits of futures contracts may not be
achieved or a loss may be realized.
Futures contracts do involve certain risks. These risks could include a lack of
correlation between the futures contract and the corresponding securities
market, a potential lack of liquidity in the secondary market and incorrect
assessments of market trends which may result in poorer overall performance than
if a futures contact had not been entered into.
Brokerage costs will be incurred and "margin" will be required to be posted and
maintained as a good faith deposit against performance of obligations under
futures contracts written for the Portfolio.
Options on Futures Contracts. The Portfolio may purchase and write options on
futures contracts for hedging purposes. The purchase of a call option on a
futures contract is similar in some respects to the purchase of a call option on
an individual security. Depending on the pricing of the option compared to
either the price of the futures contract upon which it is based or the price of
the underlying debt securities, it may or may not be less risky than ownership
of the futures contract or underlying debt securities. As with the purchase of
futures contracts, when the 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 Portfolio may invest in options on such futures contracts for similar
purposes. The writing of a call option on a futures contract constitutes a
partial hedge against declining prices of the security or foreign currency which
is deliverable upon exercise of the futures contract. If the futures price at
expiration of the option is below the exercise price, the Portfolio will retain
the full amount of the option premium which provides a partial hedge against any
decline that may have occurred in the Portfolio's holdings. The writing of a
put option on a futures contract constitutes a partial hedge against increasing
prices of the security or foreign currency which is deliverable upon exercise of
the futures contract. If the futures price at expiration of the option is
higher than the exercise price, the Portfolio will retain the full amount of the
option premium which provides a partial hedge against any increase in the price
of securities which the Portfolio intends to purchase. If a put or call option
the Portfolio has written is exercised, the Portfolio will incur a loss which
will be reduced by the amount of the premium it receives. Depending on the
degree of correlation between changes in the value of its portfolio securities
and changes in the value of its futures positions, the Portfolio's losses from
existing options on futures may to some extent be reduced or increased by
changes in the value of portfolio securities.
The purchase of a put option on a futures contract is similar in some respects
to the purchase of protective put options on portfolio securities. For example,
the Portfolio may purchase a put option on a futures contract to hedge its
portfolio against the risk of rising interest rates.
The amount of risk the Portfolio assumes when it purchases an option on a
futures contract is the premium paid for the option plus related transaction
costs. In addition to the correlation risks discussed above, the purchase of an
13
<PAGE>
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.
Asset Coverage. To reduce the leverage created by the Portfolio's use of
futures and related options, as well as when-issued and delayed delivery
securities and foreign currency exchange transactions, the Portfolio will cover
such transactions, as required under applicable interpretations of the SEC,
either by owning the underlying securities or by identifying on the Portfolio's
books liquid securities in an amount at all times equal to or exceeding the
Portfolio's commitment with respect to these instruments or contracts.
Additional Risks of Options on Futures Contracts, Forward Contracts and Options
on Foreign Currencies. Unlike transactions entered into by the Portfolio in
futures contracts, options on foreign currencies and forward contracts are not
traded on contract markets regulated by the CFTC or (with the exception of
certain foreign currency options) by the SEC. To the contrary, such instruments
are traded through financial institutions acting as market-makers, although
foreign currency options are also traded on certain national securities
exchanges, such as the Philadelphia Stock Exchange and the Chicago Board Options
Exchange, subject to SEC regulation. Similarly, options on currencies may be
traded over-the-counter. In an over-the-counter trading environment, many of
the protections afforded to exchange participants will not be available. For
example, there are no daily price fluctuation limits, and adverse market
movements could therefore continue to an unlimited extent over a period of time.
Although the purchaser of an option cannot lose more than the amount of the
premium plus related transaction costs, this entire amount could be lost.
Moreover, the option writer and a trader of forward contracts could lose amounts
substantially in excess of their initial investments, due to the margin and
collateral requirements associated with such positions.
Options on foreign currencies traded on national securities exchanges are within
the jurisdiction of the SEC, as are other securities traded on such exchanges.
As a result, many of the protections provided to traders on organized exchanges
will be available with respect to such transactions. In particular, all foreign
currency option positions entered into on a national securities exchange are
cleared and guaranteed by the Options Clearing Corporation ("OCC"), thereby
reducing the risk of counter-party default. Further, a liquid secondary market
in options traded on a national securities exchange may be more readily
available than in the over-the-counter market, potentially permitting the
Portfolio to liquidate open positions at a profit prior to exercise or
expiration, or to limit losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options, however, is
subject to the risks of the availability of a liquid secondary market described
above, as well as the risks regarding adverse market movements, margining of
options written, the nature of the foreign currency market, possible
intervention by governmental authorities and the effects of other political and
economic events. In addition, exchange-traded options on foreign currencies
involve certain risks not presented by the over-the-counter market. For
example, exercise and settlement of such options must be made exclusively
through the OCC, which has established banking relationships in applicable
foreign countries for this purpose. As a result, the OCC may, if it determines
that foreign governmental restrictions or taxes would prevent the orderly
settlement of foreign currency option exercises, or would result in undue
burdens on the OCC or its clearing member, impose special procedures on exercise
and settlement, such as technical changes in the mechanics of delivery of
currency, the fixing of dollar settlement prices or prohibitions on exercise.
As in the case of forward contracts, certain options on foreign currencies are
traded over-the-counter and involve liquidity and credit risks which may not be
present in the case of exchange-traded currency options. The Portfolio's
ability to terminate over-the-counter options will be more limited than with
exchange-traded options. It is also possible that broker-dealers participating
in over-the-counter options transactions will not fulfill their obligations.
Until such time as the staff of the SEC changes its position, the Portfolio will
treat purchased over-the-counter options and assets used to cover written over-
the-counter options as illiquid securities. With respect to options
14
<PAGE>
written with primary dealers in U.S. government securities pursuant to an
agreement requiring a closing purchase transaction at a formula price, the
amount of illiquid securities may be calculated with reference to the repurchase
formula.
In addition, futures contracts, options on futures contracts, forward contracts
and options on foreign currencies may be traded on foreign exchanges. Such
transactions are subject to the risk of governmental actions affecting trading
in or the prices of foreign currencies or securities. The value of such
positions also could be adversely affected by: (i) other complex foreign
political and economic factors; (ii) lesser availability than in the United
States of data on which to make trading decisions; (iii) delays in the
Portfolio's ability to act upon economic events occurring in foreign markets
during nonbusiness hours in the United States; (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States; and (v) lesser trading volume.
Additional Investment Techniques and Risks
Investment Company Securities. Securities of other investment companies may be
acquired by the Portfolio to the extent permitted under the 1940 Act, that is,
the Portfolio may invest a maximum of up to 10% of its total assets in
securities of other investment companies so long as not more than 3% of the
total outstanding voting stock of any one investment company is held by the
Portfolio. In addition, not more than 5% of the Portfolio's total assets may be
invested in the securities of any one investment company. The Portfolio may be
permitted to exceed these limitations by an exemptive order of the SEC. It
should be noted that investment companies incur certain expenses such as
management, custodian, and transfer agency fees, and therefore any investment by
the Portfolio in shares of other investment companies would be subject to such
duplicate expenses.
Other Investment Techniques. The Portfolio may also utilize the following
investments and investment practices: repurchase agreements, zero coupon debt
securities, government securities, mortgage backed securities, collateralized
mortgage obligations, asset-backed securities and foreign investments. See
"Additional Information" herein for further information.
Risks of Investing in Foreign Securities. The investment in foreign securities
may involve additional risks. Foreign securities usually are denominated in
foreign currencies, which means their value will be affected by changes in the
strength of foreign currencies relative to the U.S. dollar as well as the other
factors that affect security prices. Foreign companies may not be subject to
accounting standards or governmental supervision comparable to U.S. companies,
and there often is less publicly available information about their operations.
Generally, there is less governmental regulation of foreign securities markets,
and securities trading practices abroad may offer less protection to investors
such as the Portfolio. The value of such instruments may be adversely affected
by changes in political or social conditions, diplomatic relations, confiscatory
taxation, expropriation, nationalization, limitation on the removal of funds or
assets, or imposition of (or change in) exchange control or tax regulations in
those foreign countries. Foreign securities may be less liquid or more volatile
than domestic investments. The Adviser considers these factors in making
investments for the Portfolio and limits the amount of the Portfolio's assets
that may be invested in foreign securities to 25% of its total assets for each
asset class and to less than 50% for all classes under normal conditions.
However, within the Portfolio's limitations, investments in any one country or
currency are not restricted.
Derivatives. The Portfolio may invest in various instruments that are commonly
known as "derivatives." Generally, a derivative is a financial arrangement, the
value of which is based on, or "derived" from, a traditional security, asset or
market index. Some "derivatives" such as mortgage-related and other asset-
backed securities are in many respects like any other investment, although they
may be more volatile or less liquid than more traditional debt securities.
There are, in fact, many different types of derivatives and many different ways
to use them. There are a range of risks associated with those uses. The
Portfolio may use futures and options as a low-cost method of gaining exposure
to a particular securities market without investing directly in those securities
and for traditional hedging purposes to attempt to protect the Portfolio from
exposure to changing interest rates, securities prices or
15
<PAGE>
currency exchange rates and for cash management or other investment purposes.
The use of derivatives may result in some leverage. The Portfolio will limit the
leverage created by its use of derivative for investment purposes by "covering"
such positions as required by the SEC. The Adviser may use derivatives in
circumstances where the Adviser believes they offer an economical means of
gaining exposure to a particular asset class. 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.
The Portfolio's investment in options, futures or forward contracts, and similar
strategies depend on the Adviser's judgment as to the potential risks and
rewards of different types of strategies. Options and futures can be volatile
investments, and may not perform as expected. If the Adviser applies a hedge at
an inappropriate time or judges price trends incorrectly, options and futures
strategies may lower the Portfolio's return. Options and futures traded on
foreign exchanges generally are not regulated by U.S. authorities, and may offer
less liquidity and less protection to the Portfolio in the event of default by
the other party to the contract. The Portfolio could also experience losses if
the prices of its options and futures positions were poorly correlated with its
other investments, or if it could not close out its positions because of an
illiquid secondary market.
Further descriptions of a number of investment and investment techniques
available to the Portfolios, including foreign investments and the use of option
and futures and other investment techniques which may be considered
"derivatives", and certain risks associated with these investments and
techniques are included under "Additional Information" herein.
Special Information Concerning Master-Feeder Fund Structure. Unlike other open-
end management companies (mutual funds) which directly acquire and manage their
own portfolio securities, the Fund seeks to achieve its investment objective by
investing all of its assets in its Portfolio, a separate registered investment
company with the same investment objectives as the Fund. Therefore, an
investor's interest in the Portfolio's securities is indirect. In addition to
selling a beneficial interest to a Fund, the Portfolio may sell beneficial
interests to other mutual funds or institutional investors. Such investors will
invest in the Portfolio on the same terms and conditions and will pay a
proportionate share of the Portfolio's expenses. However, the other investors
investing in the Portfolio are not required to sell their shares at the same
public offering price as the Fund due to variations in sale commissions and
other operating expenses. Therefore, investors in the Fund should be aware that
these differences my result in differences in returns experienced by investors
in the different funds that invest in the Portfolios. Such differences in
returns are also present in other mutual fund structures. Information
concerning other holders of interests in the Portfolio is available by
contacting Bankers Trust at 1-800-730-1313.
The master-feeder structure is relatively complex, so shareholders should
carefully consider this investment approach.
Small funds investing in the Portfolio may be materially affected by the actions
of larger funds investing in the Portfolio. For example, if a large fund
withdraws from the Portfolio, the remaining funds may experience higher pro-rata
operating expenses, thereby producing lower returns (however, this possibility
exists as well for traditionally structured funds with large institutional
investors). Additionally, the Portfolio may become less diverse, resulting in
increased portfolio risk. Also, funds with a greater pro rata ownership in the
Portfolios could have effective voting control of the operation of the
Portfolios. Whenever the Trust is requested to vote in matters pertaining to
the Portfolio, the Trust will, except as permitted by the SEC, hold a meeting of
shareholders of the corresponding Fund and will cast all of its votes in the
same proportion as the votes of the Fund's shareholders. Fund shareholders who
do not vote will not affect the Trust's votes at the Portfolio meeting. The
percentage of the Trust's votes representing Fund shareholders not voting will
be voted by the Trustees or officers of the Trust in the same proportion as the
Fund shareholders who do, in fact, vote. Certain changes in the Portfolio's
investment objectives, policies or restrictions may require the corresponding
Fund to withdraw its interest in the Portfolio. Any
16
<PAGE>
such withdrawal could result in a distribution "in kind" of portfolio securities
(as opposed to a cash distribution from the Portfolio). If securities are
distributed, a Fund could incur brokerage, tax and 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 a
Fund. Notwithstanding the above, there are some other means for meeting
redemption requests, such as borrowing.
A Fund may withdraw its investments from the corresponding Portfolio at any
time, if the Board of Trustees of the Trust determines that it is in the best
interests if the shareholders of the Fund to do so. Upon any such withdrawal,
the Board of Trustees of the Trust would consider what action might be taken,
including the investment of all the assets of a Fund in another pooled
investment entity having the same investment objectives as the Fund or the
retaining of an investment adviser to manage the Fund's assets in accordance
with the investment policies described below with respect to the Portfolio.
The Fund's investment objective is not a fundamental policy and may be changed
upon notice to, but without the approval of, the Fund's shareholders. If there
is a change in the Fund's investment objective, the Fund's shareholders should
consider whether the Fund remains an appropriate investment in light of their
current needs. The investment objective of the portfolio is also not a
fundamental policy. Shareholders of the Fund will receive 30 days prior written
notice with respect to any change in the investment objective of the Funds or
the Portfolios. See "Investment Objective and Policies" herein for a
description of the fundamental policies of the Portfolios that cannot be changed
without approval by the holders of "a majority if the outstanding voting
securities" (as defined in the 1940 Act) of the Portfolio.
Rating Services
The ratings of rating services represent their opinions as to the quality of the
securities that they undertake to rate. It should be emphasized, however, that
ratings are relative and subjective and are not absolute standards of quality.
Although these ratings are an initial criterion for selection of portfolio
investments, the Adviser also makes its own evaluation of these securities,
subject to review by the Board of Trustees. After purchase by the 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 a Fund to
eliminate the obligation from its portfolio, but the Adviser will consider such
an event in its determination of whether a Fund should continue to hold the
obligation. A description of the ratings used herein and in the Funds'
Prospectus is set forth in the Appendix to this SAI.
Investment Restrictions
The following investment restrictions are "fundamental policies" of the Fund and
the Portfolio and may not be changed with respect to the Fund or the Portfolio
without the approval of a "majority of the outstanding voting securities" of the
Fund or the Portfolio, as the case may be. "Majority of the outstanding voting
securities" under the Investment Company Act of 1940, as amended (the "1940
Act"), and as used in this SAI and the Prospectus, means, with respect to the
Fund (or the Portfolio), the lesser of (i) 67% or more of the outstanding voting
securities of the Fund (or of the total beneficial interests of the Portfolio)
present at a meeting, if the holders of more than 50% of the outstanding voting
securities of the Fund or of the total beneficial interests of the Portfolio)
are present or represented by proxy or (ii) more than 50% of the outstanding
voting securities of the Fund (or of the total beneficial interests of the
Portfolio). Whenever the Trust is requested to vote on a fundamental policy of
the Portfolio, the Trust will hold a meeting of the Fund's shareholders and will
cast its vote as instructed by that Fund's shareholders.
As a matter of fundamental policy, the Portfolio (or the Fund) may not (except
that no investment restriction of the Fund shall prevent the Fund from investing
all of its Assets in an open-end investment company with substantially the same
investment objective):
17
<PAGE>
1. borrow money or mortgage or hypothecate assets of the Portfolio (Fund),
except that in an amount not to exceed 1/3 of the current value of the
Portfolio's (Fund's) assets, it may borrow money as a temporary measure for
extraordinary or emergency purposes and enter into reverse repurchase
agreements or dollar roll transactions, and except that it may pledge,
mortgage or hypothecate not more than 1/3 of such assets to secure such
borrowings (it is intended that money would be borrowed only from banks and
only either to accommodate requests for the withdrawal of beneficial
interests (redemption of shares) while effecting an orderly liquidation of
portfolio securities or to maintain liquidity in the event of an
unanticipated failure to complete the Portfolio security transaction or
other similar situations) or reverse repurchase agreements, provided that
collateral arrangements with respect to options and futures, including
deposits of initial deposit and variation margin, are not considered a
pledge of assets for purposes of this restriction and except that assets may
be pledged to secure letters of credit solely for the purpose of
participating in a captive insurance company sponsored by the Investment
Company Institute; for additional related restrictions, see clause (i) under
the caption "Additional Restrictions" below;
2. underwrite securities issued by other persons except insofar as the
Portfolio (Trust or the Fund) may technically be deemed an underwriter under
the 1933 Act in selling a portfolio security;
3. make loans to other persons except: (a) through the lending of the
Portfolio's (Fund's) portfolio securities and provided that any such loans
not exceed 30% of the Portfolio's (Fund's) 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 (Trust) may hold and sell, for the Portfolio's (Fund's)
portfolio, real estate acquired as a result of the Portfolio's (Fund's)
ownership of securities);
5. concentrate its investments in any particular industry (excluding U.S.
government securities), but if it is deemed appropriate for the achievement
of the Portfolio's (Fund'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, including deposits of initial deposit
and variation margin, are not considered to be the issuance of a senior
security for purposes of this restriction.
7. With respect to 75% of each Fund's (Portfolio's) total assets, invest more
than 5% of its total assets in the securities of any one issuer (excluding
cash and cash-equivalents, U.S. government securities and the securities of
other investment companies) or own more than 10% of the voting securities of
any issuer.
Additional Restrictions. In order to comply with certain statutes and policies
the Portfolio (or the Trust, on behalf of the Fund) will not as a matter of
operating policy (except that no operating policy shall prevent the Fund from
investing all of its Assets in an open-end investment company with substantially
the same investment objective):
i. borrow money (including through reverse repurchase) for any purpose in
excess of 5% of the Portfolio's (Fund's) total assets (taken at market),
except that the Portfolio (Fund) may borrow for temporary or emergency
purposes up to 1/3 of its total assets;
ii. pledge, mortgage or hypothecate for any purpose in excess of 10% of the
Portfolio's (Fund's) total assets (taken at market value), provided that
collateral arrangements with respect to options and futures, including
18
<PAGE>
deposits of initial deposit and variation margin, and reverse repurchase
agreements are not considered a pledge of assets for purposes of this
restriction;
iii. purchase any security or evidence of interest therein on margin, except
that such short-term credit as may be necessary for the clearance of
purchases and sales of securities may be obtained and except that deposits
of initial deposit and variation margin may be made in connection with the
purchase, ownership, holding or sale of futures;
iv. invest for the purpose of exercising control or management;
v. purchase securities issued by any investment company except by purchase in
the open market where no commission or profit to a sponsor or dealer
results from such purchase other than the customary broker's commission, or
except when such purchase, though not made in the open market, is part of a
plan of merger or consolidation; provided, however, that securities of any
investment company will not be purchased for the Portfolio (Fund) if such
purchase at the time thereof would cause (a) more than 10% of the
Portfolio's (Fund's) total assets (taken at the greater of cost or market
value) to be invested in the securities of such issuers; (b) more than 5%
of the Portfolio's (Fund's) total assets (taken at the greater of cost or
market value) to be invested in any one investment company; or (c) more
than 3% of the outstanding voting securities of any such issuer to be held
for the Portfolio (Fund) unless permitted to exceed these limitations by an
exemptive order of the SEC; provided further that, except in the case of
merger or consolidation, the Portfolio (Fund) shall not purchase any
securities of any open-end investment company unless the Portfolio (Fund)
(1) waives the investment advisory fee with respect to assets invested in
other open-end investment companies and (2) incurs no sales charge in
connection with the investment;
vi. invest more than 15% of the Portfolio's (Fund's) net assets (taken at the
greater of cost or market value) in securities that are illiquid or not
readily marketable excluding (a) Rule 144A securities that have been
determined to be liquid by the Board of Trustees; and (b) commercial paper
that is sold under section 4(2) of the 1933 Act which: (i) is not traded
flat or in default as to interest or principal; and (ii) is rated in one of
the two highest categories by at least two nationally recognized
statistical rating organizations and the Portfolio's (Fund's) Board of
Trustees have determined the commercial paper to be liquid; or (iii) is
rated in one of the two highest categories by one nationally recognized
statistical rating agency and the Portfolio's (Fund's) Board of Trustees
has determined that the commercial paper is of equivalent quality and is
liquid;
There will be no violation of any investment restriction if that restriction is
complied with at the time the relevant action is taken notwithstanding a later
change in market value of an investment, in net or total assets, in the
securities rating of the investment, or any other later change.
The Fund will comply with the state securities laws and regulations of all
states in which it is registered. The Portfolio will comply with the permitted
investments and investment limitations in the securities laws and regulations of
all states in which the Fund, or any 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 on such securities and futures for the Portfolio, the
selection of brokers, dealers and futures commission merchants to effect
transactions and the negotiation of brokerage commissions, if any. Broker-
dealers may receive brokerage commissions on portfolio transactions, including
options, futures and options on futures transactions and the purchase and sale
of underlying securities upon the exercise of options. Orders may be directed
to any broker-dealer or futures commission merchant, including to the extent and
in the manner permitted by applicable law,
19
<PAGE>
Bankers Trust or its subsidiaries or affiliates. Purchases and sales of certain
portfolio securities on behalf of the Portfolio are frequently placed by the
Adviser with the issuer or a primary or secondary market-maker for these
securities on a net basis, without any brokerage commission being paid by the
Portfolio. Trading does, however, involve transaction costs. Transactions with
dealers serving as market-makers reflect the spread between the bid and asked
prices. Transaction costs may also include fees paid to third parties for
information as to potential purchasers or sellers of securities. Purchases of
underwritten issues may be made which will include an underwriting fee paid to
the underwriter.
The Adviser seeks to evaluate the overall reasonableness of the brokerage
commissions paid (to the extent applicable) in placing orders for the purchase
and sale of securities for the Portfolio taking into account such factors as
price, commission (negotiable in the case of national securities exchange
transactions), if any, size of order, difficulty of execution and skill required
of the executing broker-dealer through familiarity with commissions charged on
comparable transactions, as well as by comparing commissions paid by the
Portfolio to reported commissions paid by others. The Adviser reviews on a
routine basis commission rates, execution and settlement services performed,
making internal and external comparisons.
The Adviser is authorized, consistent with Section 28(e) of the Securities
Exchange Act of 1934, as amended, when placing portfolio transactions for the
Portfolio with a broker to pay a brokerage commission (to the extent applicable)
in excess of that which another broker might have charged for effecting the same
transaction on account of the receipt of research, market or statistical
information. The term "research, market or statistical information" includes
advice as to the value of securities; the advisability of investing in,
purchasing or selling securities; the availability of securities or purchasers
or sellers of securities; and furnishing analyses and reports concerning
issuers, industries, securities, economic factors and trends, portfolio strategy
and the performance of accounts.
Consistent with the policy stated above, the Rules of Fair Practice of the
National Association of Securities Dealers, Inc. and such other policies as the
Trustees of the Portfolio may determine, the Adviser may consider sales of
shares of the Trust and of other investment company clients of Bankers Trust as
a factor in the selection of broker-dealers to execute portfolio transactions.
Bankers Trust will make such allocations if commissions are comparable to those
charged by nonaffiliated, qualified broker-dealers for similar services.
Higher commissions may be paid to firms that provide research services to the
extent permitted by law. Bankers Trust may use this research information in
managing the Portfolio's assets, as well as the assets of other clients.
Except for implementing the policies stated above, there is no intention to
place portfolio transactions with particular brokers or dealers or groups
thereof. In effecting transactions in over-the-counter securities, orders are
placed with the principal market-makers for the security being traded unless,
after exercising care, it appears that more favorable results are available
otherwise.
Although certain research, market and statistical information from brokers and
dealers can be useful to the Portfolio and to the Adviser, it is the opinion of
the management of the Portfolio that such information is only supplementary to
the Adviser's own research effort, since the information must still be analyzed,
weighed and reviewed by the Adviser's staff. Such information may be useful to
the Adviser in providing services to clients other than the Portfolio, and not
all such information is used by the Adviser in connection with the Portfolio.
Conversely, such information provided to the Adviser by brokers and dealers
through whom other clients of the Adviser effect securities transactions may be
useful to the Adviser in providing services to the Portfolio.
In certain instances there may be securities which are suitable for the
Portfolio as well as for one or more of the Adviser's other clients. Investment
decisions for the Portfolio and for the Adviser's other clients are made with a
view to achieving their respective investment objectives. It may develop that a
particular security is bought or sold for only one client even though it might
be held by, or bought or sold for, other clients. Likewise, a particular
security may be bought for one or more clients when one or more clients are
selling that same security. Some
20
<PAGE>
simultaneous transactions are inevitable when several clients receive investment
advice from the same investment adviser, particularly when the same security is
suitable for the investment objectives of more than one client. When two or more
clients are simultaneously engaged in the purchase or sale of the same security,
the securities are allocated among clients in a manner believed to be equitable
to each. It is recognized that in some cases this system could have a
detrimental effect on the price or volume of the security as far as the
Portfolio is concerned. However, it is believed that the ability of the
Portfolio to participate in volume transactions will produce better executions
for the Portfolio.
For the fiscal years ended March 31, 1999, 1998 and 1997, the Portfolio paid
brokerage commissions in the amount of $274,483, $205,989 and $193,354,
respectively.
PERFORMANCE INFORMATION
Standard Performance Information
The Funds' performance may be used from time to time in advertisements,
shareholder reports or other communications to shareholders or prospective
shareholders. Performance information may include the Fund's investment results
and/or comparisons of its investment results to the Lipper Flexible Funds
Average, S&P 500 Index, Salomon Broad Investment Grade Bond Index, Salomon U.S.
Dollar T Bill Index and various unmanaged indices (or a blended rate of several
of such indices) or results of other mutual funds or investment or savings
vehicles. The Fund's investment results as used in such communications will be
calculated on a yield or total rate of return basis in the manner set forth
below. From time to time, fund rankings may be quoted from various sources such
as Lipper Analytical Services, Inc., Value Line and Morningstar, Inc.
The Trust may provide period and average annualized "total return" quotations
for the Funds. The "total return" refers to the change in the value of an
investment in the Fund over a stated period based on any change in net asset
value per share and including the value of any shares purchasable with any
dividends or capital gains distributed during such period. 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.
The Trust may provide annualized "yield" quotations for the Funds. The "yield"
of a Fund refers to the income generated by an investment in the Fund over a 30
day or one month period (which period shall be stated in any such advertisement
or communications). This income is then annualized; that is, the amount
generated by the investment over the period is assumed to be generated over a
one year period and is shown as a percentage of the investment.
Unlike some bank deposits or other investments which pay a fixed yield for a
stated period of time, the total return of a Fund will vary depending upon
interest rates, the current market value of the securities held by the
corresponding Portfolio and changes in the Fund's expenses. In addition, during
certain periods for which total return or yield quotations may be provided,
Bankers Trust, as Adviser, Service Agent or Administrator may have voluntarily
agreed to waive portions of its fees on a month to month basis. Such waivers
will have the effect of increasing a Fund's net income (and therefore its total
return or yield) during the period such waivers are in effect.
Shareholders will receive financial reports semi annually that include the
Portfolios' financial statements, including listings of investment securities
held by the Portfolios at those dates. Annual reports are audited by independent
accountants.
From time to time, quotations of the Fund's performance may be included in
advertisements, sales literature or shareholder reports. These performance
figures are calculated in the following manner:
21
<PAGE>
Yield: Yields for the Fund used in advertising are computed by dividing the
Fund's interest and dividend income for a given 30-day or one-month period, net
of expenses, by the average number of shares entitled to receive distributions
during the period, dividing this figure by the Fund's net asset value per share
at the end of the period, and annualizing the result (assuming compounding of
income) in order to arrive at an annual percentage rate. Income is calculated
for purpose of yield quotations in accordance with standardized methods
applicable to all stock and bond mutual funds. Dividends from equity
investments are treated as if they were accrued on a daily basis, solely for the
purpose of yield calculations. In general, interest income is reduced with
respect to bonds trading at a premium over their par value by subtracting a
portion of the premium from income on a daily basis, and is increased with
respect to bonds trading at a discount by adding a portion of the discount to
daily income. Capital gains and losses generally are excluded from the
calculation.
Income calculated for the purposes of calculating the Fund's yield differs from
income as determined for other accounting purposes. Because of the different
accounting methods used, and because of the compounding assumed in yield
calculations, the yield quoted for the Fund may differ from the rate of
distributions of the Fund paid over the same period or the rate of income
reported in the Fund's financial statements.
The Fund's 30-day SEC yield for the period ended March 31, 1999, was 2.48%.
Total return: The Fund's average annual total return will be calculated for
certain periods by determining the average annual compounded rates of return
over those periods that would cause an investment of $1,000 (made at the maximum
public offering price with all distributions reinvested) to reach the value of
that investment at the end of the periods. The Fund may also calculate total
return figures which represent aggregate performance over a period or year-by-
year performance.
For the fiscal year ended March 31, 1999, and for the period from September 16,
1993 (commencement of operations) to March 31, 1999, the average annual total
returns for the Fund were 12.83%, and 14.83% (annualized), respectively.
Performance Results: Any total return quotation provided for the Fund should
not be considered as representative of the performance of the Fund in the future
since the net asset value and public offering price of shares of the Fund will
vary based not only on the type, quality and maturities of the securities held
in the Portfolio, but also on changes in the current value of such securities
and on changes in the expenses of the Fund and the Portfolio. These factors and
possible differences in the methods used to calculate total return should be
considered when comparing the total return of the Fund to total returns
published for other investment companies or other investment vehicles. Total
return reflects the performance of both principal and income.
Comparison of Fund Performance
Comparison of the quoted non-standardized 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 which may assume reinvestment of dividends but generally do not reflect
deductions for administrative and management costs. Evaluations of the Fund's
performance made by independent sources may also be used in advertisements
concerning the Fund. Sources for the Fund's performance information could
include the following:
Asian Wall Street Journal, a weekly Asian newspaper that often reviews U.S.
- -------------------------
mutual funds investing internationally.
22
<PAGE>
Barron's, a Dow Jones and Company, Inc. business and financial weekly that
- --------
periodically reviews mutual fund performance data.
Business Week, a national business weekly that periodically reports the
- -------------
performance rankings and ratings of a variety of mutual funds investing abroad.
Changing Times, The Kiplinger Magazine, a monthly investment advisory
- --------------------------------------
publication that periodically features the performance of a variety of
securities.
Consumer Digest, a monthly business/financial magazine that includes a "Money
- ---------------
Watch" section featuring financial news.
Financial Times, Europe's business newspaper, which features from time to time
- ---------------
articles on international or country-specific funds.
Financial World, a general business/financial magazine that includes a "Market
- ---------------
Watch" department reporting on activities in the mutual fund industry.
Forbes, a national business publication that from time to time reports the
- ------
performance of specific investment companies in the mutual fund industry.
Fortune, a national business publication that periodically rates the performance
- -------
of a variety of mutual funds.
Global Investor, a European publication that periodically reviews the
- ---------------
performance of U.S. mutual funds investing internationally.
Investor's Business Daily, a daily newspaper that features financial, economic
- -------------------------
and business news.
Lipper Analytical Services, Inc.'s Mutual Fund Performance Analysis, a weekly
- -------------------------------------------------------------------
publication of industry-wide mutual fund averages by type of fund.
Money, a monthly magazine that from time to time features both specific funds
- -----
and the mutual fund industry as a whole.
Morningstar Inc., a publisher of financial information and mutual fund research.
- ----------------
New York Times, a nationally distributed newspaper which regularly covers
- --------------
financial news.
Personal Investing News, a monthly news publication that often reports on
- -----------------------
investment opportunities and market conditions.
Personal Investor, a monthly investment advisory publication that includes a
- -----------------
"Mutual Funds Outlook" section reporting on mutual fund performance measures,
yields, indices and portfolio holdings.
Success, a monthly magazine targeted to the world of entrepreneurs and growing
- -------
business, often featuring mutual fund performance data.
U.S. News and World Report, a national business weekly that periodically reports
- --------------------------
mutual fund performance data.
Value Line, a biweekly publication that reports on the largest 15,000 mutual
- ----------
funds.
Wall Street Journal, a Dow Jones and Company, Inc. newspaper which regularly
- -------------------
covers financial news.
Weisenberger Investment Companies Services, an annual compendium of information
- ------------------------------------------
about mutual funds and other investment companies, including comparative data on
funds' backgrounds, management policies, salient features, management results,
income and dividend records, and price ranges.
23
<PAGE>
Working Women, a monthly publication that features a "Financial Workshop"
- -------------
section reporting on the mutual fund/financial industry.
Economic and Market Information
Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take 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 SECURITIES
Redemptions and Purchases In Kind
The net asset value ("NAV") per share of the Fund is calculated on each day on
which the New York Stock Exchange Inc. (the "NYSE") is open (each such day being
a "Valuation Day"). The NYSE is currently open on each day, Monday through
Friday, except: (a) January 1st, Martin Luther King Jr. Day (the third Monday in
January), Presidents' Day (the third Monday in February), Good Friday, Memorial
Day (the last Monday in May), Independence Day, Labor Day (the first Monday in
September), Thanksgiving Day (the last Thursday in November) and December 25th;
and (b) the preceding Friday or the subsequent Monday when one of the calendar
determined holidays falls on a Saturday or Sunday, respectively.
The NAV per share of the Fund is calculated once on each Valuation Day as of the
close of regular trading on the NYSE, which is currently 4:00 p.m., New York
time or in the event that the NYSE closes early, at the time of such early
closing (the "Valuation Time"). The NAV per share of the Fund is computed by
dividing the value of the Fund's Assets (i.e., the value of its investment in
the Portfolio and other assets), less all liabilities, by the total number of
its shares outstanding. The Portfolio's securities and other assets are valued
on the basis of market quotations or, if market quotations are not readily
available, by a method which that Portfolio's Board of Trustees believes
accurately reflects fair value.
Equity and debt securities (other than short-term debt obligations maturing in
60 days or less), including listed securities and securities for which price
quotations are available, will normally be valued on the basis of market
valuations furnished by a pricing service. Short-term debt obligations and
money market securities maturing in 60 days or less are valued at amortized
cost, which approximates market.
Securities for which market quotations are not available are valued by Bankers
Trust pursuant to procedures adopted by the Portfolio's Board of Trustees. It
is generally agreed that securities for which market quotations are not readily
available should not be valued at the same value as that carried by an
equivalent security which is readily marketable.
The problems inherent in making a good faith determination of value are
recognized in the codification effected by SEC Financial Reporting Release No. 1
("FRR 1" (formerly Accounting Series Release No. 113)) which concludes that
there is "no automatic formula" for calculating the value of restricted
securities. It recommends that the best method simply is to consider all
relevant factors before making any calculation. According to FRR 1 such factors
would include consideration of the:
type of security involved, financial statements, cost at
date of purchase, size of holding, discount from market
value of unrestricted securities of the same class
24
<PAGE>
at the time of purchase, special reports prepared by
analysts, information as to any transactions or offers with
respect to the security, existence of merger proposals or
tender offers affecting the security, price and extent of
public trading in similar securities of the issuer or
comparable companies, and other relevant matters.
To the extent that the Portfolio purchases securities which are restricted as to
resale or for which current market quotations are not available, the Adviser of
the Portfolio will value such securities based upon all relevant factors as
outlined in FRR 1.
The Trust, on behalf of the Fund, and the Portfolio reserve the right, if
conditions exist which make cash payments undesirable, to honor any request for
redemption or repurchase order by making payment in whole or in part in readily
marketable securities chosen by the Trust, or the Portfolio, as the case may be,
and valued as they are for purposes of computing the Fund's or the Portfolio's
net asset value, as the case may be (a redemption in kind). If payment is made
to a Fund shareholder in securities, an investor, including the Fund, may incur
transaction expenses in converting these securities into cash. The Trust, on
behalf of the Fund, and the Portfolio have elected, however, to be governed by
Rule 18f-1 under the 1940 Act as a result of which the Fund and the Portfolio
are obligated to redeem shares or beneficial interests, as the case may be, with
respect to any one investor during any 90-day period, solely in cash up to the
lesser of $250,000 or 1% of the net asset value of the Fund or the Portfolio, as
the case may be, at the beginning of the period.
The Portfolio has agreed to make a redemption in kind to the Fund whenever the
Fund wishes to make redemption in kind and therefore shareholders of the Fund
that receive redemptions in kind will receive portfolio securities of such
Portfolio, and in no case will they receive a security issued by the Portfolio.
The Portfolio has advised the Trust that the Portfolio will not redeem in kind
except in circumstances in which the Fund is permitted to redeem in kind or
unless requested by the Fund.
Each investor in the Portfolio, including the Fund, may add to or reduce its
investment in the Portfolio on each day the Portfolio determines its net asset
value. At the close of each such business day, the value of each investor's
beneficial interest in the Portfolio will be determined by multiplying the net
asset value of the Portfolio by the percentage, effective for that day, which
represents that investor's share of the aggregate beneficial interests in the
Portfolio. Any additions or withdrawals which 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 the fraction (i) the numerator of which is the value
of such investor's investment in the Portfolio as of the close of business on
such 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 such day, and (ii) the denominator of which is the
aggregate net asset value of the Portfolio as of the close of business on such
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 in
the Portfolio. The percentage so determined will then be applied to determine
the value of the investor's interest in the Portfolio as the close of business
on the following business day.
The Fund may, at its own option, accept securities in payment for shares. The
securities delivered in payment for shares are valued by the method described
under "Net Asset Value" as of the day the Fund receives the securities. This is
a taxable transaction to the shareholder. Securities may be accepted in payment
for shares only if they are, in the judgment of Bankers Trust, appropriate
investments for the Fund's Portfolio. In addition, securities accepted in
payment for shares must: (i) meet the investment objective and policies of the
acquiring Fund's Portfolio; (ii) be acquired by the applicable Fund for
investment and not for resale (other than for resale to the Fund's Portfolio);
(iii) be liquid securities which are not restricted as to transfer either by law
or liquidity of market; and (iv) if stock, have a value which is readily
ascertainable as evidenced by a listing on a stock exchange, over-the-counter
market
25
<PAGE>
or by readily available market quotations from a dealer in such securities. The
Fund reserves the right to accept or reject at its own option any and all
securities offered in payment for its shares.
Trading in Foreign Securities
Trading in foreign markets may be completed at times which vary from the closing
of the New York Stock Exchange ("NYSE"). In computing the net asset value, the
Funds value foreign securities at the latest closing price on the exchange on
which they are traded immediately prior to the closing of the NYSE. similarly,
foreign securities quoted in foreign currencies are translated into U.S. dollars
at the foreign exchange rates.
Occasionally, events that affect values an exchange rates may occur between the
times at which they are determined and the closing of the NYSE. If such events
materially affect the value of the portfolio securities, these securities may be
valued at their fair value as determined in good faith by the Trustees, although
the actual calculation may be done by others.
MANAGEMENT OF THE TRUST AND PORTFOLIO
The Trustees and officers of the Trust and Portfolio, their birthdates, and
their principal occupations during the past five years are set forth below.
Their titles may have varied during that period. Unless otherwise indicated, the
address of each officer is 5800 Corporate Drive, Pittsburgh, Pennsylvania,
15237-5829.
Trustees of the Trust
MARTIN J. GRUBER (birthdate: July 15, 1937) -- Trustee; Nomura Professor of
Finance, Leonard N. Stern School of Business, New York University (since 1964);
Trustee, TIAA (pension fund); Cowen Mutual Funds; Japan Equity Fund; and Taiwan
Equity Fund. His address is 229 S. Irving Street, Ridgewood, New Jersey 07450.
HARRY VAN BENSCHOTEN (birthdate: February 18, 1928) -- Trustee; Retired (since
1987); Director, Canada Life Insurance Corporation of New York. His address is
6581 Ridgewood Drive, Naples, Florida 34108.
Trustees of the Portfolio
CHARLES P. BIGGAR (birthdate: October 13, 1930) -- Trustee; Retired; formerly
Vice President of International Business Machines ("IBM") and President of the
National Services and the Field Engineering Divisions of IBM. His address is 12
Hitching Post Lane, Chappaqua, New York 10514.
S. LELAND DILL (birthdate: March 28, 1930) -- Trustee; Retired; Director, Coutts
(U.S.A.) International; Director, Zweig Series Trust; formerly Partner of KPMG
Peat Marwick; Director, Vinters International Company Inc.; Director, Coutts
Trust Holdings Ltd; Director, Coutts Group; General Partner of Pemco (an
investment company registered under the 1940 Act). His address is 5070 North
Ocean Drive, Singer Island, Florida 33404.
PHILIP SAUNDERS, JR. (birthdate: October 11, 1935) -- Trustee; Principal, Philip
Saunders Associates (Economic and Financial Analysis); 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 02493.
Officers of the Trust and Portfolio
Unless otherwise specified, each officer listed below holds the same position
with the Trust and the Portfolio.
26
<PAGE>
JOHN Y. KEFFER (birthdate: July 14, 1942) -- President and Chief Executive
Officer; President, Forum Financial Group. His address is 2 Portland Square,
Portland, Maine 04101.
Charles A. Rizzo
DANIEL O. HIRSCH (birthdate: March 27, 1954) -- Secretary; Principal, BT Alex.
Brown since July 1998; Assistant General Counsel in the Office of the General
Counsel at the United States Securities and Exchange Commission from 1993 to
1998. His address is One South Street, Baltimore, Maryland 21202.
Messrs. Keffer, Rizzo and Hirsch also hold similar positions for other
investment companies for which ICC Distributors, or an affiliate serves as the
principal underwriter. No person who is an officer or director of Bankers Trust
is an officer or Trustee of the Trust or the Portfolios. No director, officer or
employee of ICC Distributors or any of its affiliates will receive any
compensation from the Trust or any Portfolio for serving as an officer or
Trustee of the Trust or the Portfolios.
Trustee Compensation Table
<TABLE>
<CAPTION>
Name, Aggregate Aggregate Total
Position With Compensation Compensation Compensation from
Trust/Portfolio from Trust* from Portfolio* Fund Complex**
- --------------- ------------ --------------- -----------------
<S> <C> <C> <C>
Harry Van Benschoten,
Trustee of Trust $3,542 N/A $36,500
Martin J. Gruber,
Trustee of Trust $3,542 N/A $36,500
Kelvin J. Lancaster,
Trustee of Trust $1,598 N/A $36,500
Charles P. Biggar,
Trustee of Portfolio N/A $1,113 $36,500
S. Leland Dill,
Trustee of Portfolio N/A $ 946 $36,500
Philip Saunders, Jr.,
Trustee of Portfolio N/A $ 953 $36,500
</TABLE>
* Information is furnished for the fiscal year ended March 31, 1999.
** Aggregated information is furnished for the BT Family of Funds which consists
of the following: BT Investment Funds, BT Institutional Funds, BT Pyramid
Funds, BT Advisor Funds, BT Investment Portfolios, Cash Management Portfolio,
Treasury Money Portfolio, Tax Free Money Portfolio, NY Tax Free Money
Portfolio, International Equity Portfolio, Short Intermediate US Government
Securities Portfolio, Intermediate
27
<PAGE>
Tax Free Portfolio, Asset Management Portfolio, Equity 500 Index Portfolio,
and Capital Appreciation Portfolio. Information is provided for the last
calendar year.
As of July 1, 1999, the Trustees and officers of the Trust and the Portfolio
owned in the aggregate less than 1% of the shares of the Fund or the Trust (all
series taken together).
As of July 8, 1999, the following shareholders of record owned 5% or more of the
outstanding shares of the Fund: Bankers Trust Co Cust Kraft Thrift Plan, Jersey
City, NJ (36.27%); Bankers Trust Cust Philip Morris Inc Profit Sharing Trust,
Jersey City, NJ (28.61%); Northern Telecom c/o Bankers Trust Company (18.05%);
Bankers Trust Co Cust 410(k) Matsushita Elec Corp of America, Jersey City, NJ
(7.62%).
Investment Adviser
Under the terms of the Portfolio's investment advisory agreement with Bankers
Trust (the "Advisory Agreement"), Bankers Trust manages the Portfolio subject to
the supervision and direction of the Board of Trustees of the Portfolio.
Bankers Trust will: (i) act in strict conformity with the Portfolio's
Declaration of Trust, the 1940 Act and the Investment Advisers Act of 1940, as
the same may from time to time be amended; (ii) manage the Portfolio in
accordance with the Portfolio's investment objective, restrictions and policies;
(iii) make investment decisions for the Portfolio; and (iv) place purchase and
sale orders for securities and other financial instruments on behalf of the
Portfolio.
Bankers Trust bears all expenses in connection with the performance of services
under the Advisory Agreement. The Trust and 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 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 statements of additional information for regulatory purposes
and for distribution to existing shareholders; costs of shareholders' reports
and meetings of shareholders, officers and Trustees of the Trust or the
Portfolio; and any extraordinary expenses.
For the fiscal years ended March 31, 1999, 1998 and 1997, Bankers Trust earned
$4,398,804, $3,056,313 and, $1,882,677, respectively for compensation of
investment advisory services provided to the Portfolio. For the same periods,
Bankers Trust reimbursed $1,063,602, $731,870 and $462,108, respectively, to the
Portfolio to cover expenses.
Bankers Trust may have deposit, loan and other commercial banking relationships
with the issuers of obligations which may be purchased on behalf of the
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.
The Fund's prospectus contains disclosure as to the amount of Bankers Trust's
investment advisory and administration and services fees, including waivers
thereof. Bankers Trust may not recoup any of its waived
28
<PAGE>
investment advisory or administration and services fees. Such waivers by Bankers
Trust shall stay in effect for at least 12 months.
Administrator
Under administration and services agreements, Bankers Trust is obligated on a
continuous basis to provide such administrative services as the Board of
Trustees of the Trust and the Portfolio reasonably deem necessary for the proper
administration of the Trust or the Portfolio. Bankers Trust will generally
assist in all aspects of the Fund's and Portfolio's operations; supply and
maintain office facilities (which may be in Bankers Trust's own offices),
statistical and research data, data processing services, clerical, accounting,
bookkeeping and recordkeeping services (including without limitation the
maintenance of such books and records as are required under the 1940 Act and the
rules thereunder, except as maintained by other agents), internal auditing,
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.
For the fiscal years ended March 31, 1999, 1998 and 1997, Bankers Trust earned
$804,556, $543,152 and $333,419, respectively, in compensation for
administrative and other services provided to the Fund. During the same periods,
Bankers Trust reimbursed $892,881, $605,979 and $442,962, respectively, to the
Fund to cover expenses.
For the fiscal years ended March 31, 1999, 1998 and 1997, Bankers Trust earned
$676,739, $470,202 and $289,643, respectively, in compensation for
administrative and other services provided to the Portfolio.
Custodian and Transfer Agent
Bankers Trust, 130 Liberty Street, New York, New York 10006, serves as Custodian
for the Trust and for the Portfolio pursuant to the administration and services
agreements. As Custodian, it holds the Fund's and the Portfolio's assets.
Bankers Trust also serves as transfer agent of the Trust and of the Portfolio
pursuant to the respective administration and services agreement. Under its
transfer agency agreement with the Trust, Bankers Trust maintains the
shareholder account records for the Fund, handles certain communications between
shareholders and the Trust and causes to be distributed any dividends and
distributions payable by the Trust. Bankers Trust may be reimbursed by the Fund
or the Portfolio for its out-of-pocket expenses. Bankers Trust will comply with
the self-custodian provisions of Rule 17f-2 under the 1940 Act.
Use of Name
The Trust and Bankers Trust have agreed that the Trust may use "BT" as part of
its name for so long as Bankers Trust serves as investment adviser to the
Portfolio. The Trust has acknowledged that the term "BT" is used by and is a
property right of certain subsidiaries of Bankers Trust and that those
subsidiaries and/or Bankers Trust may at any time permit others to use that
term.
The Trust may be required, on 60 days' notice from Bankers Trust at any time, to
abandon use of the acronym "BT" as part of its name. If this were to occur, the
Trustees would select an appropriate new name for the Trust, but there would be
no other material effect on the Trust, its shareholders or activities.
29
<PAGE>
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 investment
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 Accountants
Willkie Farr & Gallagher, 787 7th Avenue, New York, New York 10019, serves as
Counsel to the Trust and the Portfolio. PricewaterhouseCoopers, 250 West Pratt
Street, Suite 21, Baltimore, Maryland 21201, have been selected as Independent
Accountants for the Trust and the Portfolio.
ORGANIZATION OF THE TRUST
Shares of the Trust do not have cumulative voting rights, which means that
holders of more than 50% of the shares voting for the election of Trustees can
elect all Trustees. Shares are transferable but have no preemptive, conversion
or subscription rights. Shareholders generally vote by Fund, except with
respect to the election of Trustees and the ratification of the selection of
independent accountants.
Massachusetts law provides that shareholders could under certain circumstances
be held personally liable for the obligations of the Trust. However, the
Trust's Declaration of Trust disclaims shareholder liability for acts or
obligations of the Trust and requires that notice of this disclaimer be given in
each agreement, obligation or instrument entered into or executed by the Trust
or a Trustee. The Declaration of Trust provides for indemnification from the
Trust's property for all losses and expenses of any shareholder held personally
liable for the obligations of the Trust. Thus, the risk of a shareholder's
incurring financial loss on account of shareholder liability is limited to
circumstances in which the Trust itself would be unable to meet its obligations,
a possibility that the Trust believes is remote. Upon payment of any liability
incurred by the Trust, the shareholder paying the liability will be entitled to
reimbursement from the general assets of the Trust. The Trustees intend to
conduct the operations of the Trust in a manner so as to avoid, as far as
possible, ultimate liability of the shareholders for liabilities of the Trust.
The Trust was organized on February 28, 1992.
Whenever the Trust is requested to vote on a matter pertaining to the Portfolio,
the Trust will vote its shares without a meeting of Fund shareholders if the
proposal, if made with respect to the Fund, would not require the vote of Fund
shareholders as long as such action is permissible under applicable statutory
and regulatory requirements. The Trust will hold a meeting of Fund shareholders
for all other matters requiring a vote, and the Trust will cast all of its votes
at the meeting of investors in the Portfolio in the same proportion as the votes
of the Fund shareholders. Other investors with a greater pro rata ownership of
the Portfolio could have effective voting control of the operations of the
Portfolio.
As of July 8, 1999, the following shareholders of record owned 25% or more of
the voting securities of the Fund, and therefore, may for certain purposes, be
deemed to control this Fund and be able to affect the outcome of certain matters
presented for a vote of the Fund's shareholders: Bankers Trust Co Cust Kraft
Thrift Plan, Jersey City, NJ (36.27%); Bankers Trust Cust Philip Morris Inc
Profit Sharing Trust, Jersey City, NJ (28.61%)
30
<PAGE>
TAXATION
Taxation of the Fund
The Trust intends to qualify annually and to elect the Fund to be treated as a
regulated investment company under the Code.
As a regulated investment company, the Fund will not be subject to U.S. Federal
income tax on its investment company taxable income and net capital gains (the
excess of net long-term capital gains over net short-term capital losses), if
any, that it distributes to shareholders. The Fund intends to distribute to its
shareholders, at least annually, substantially all of its investment company
taxable income and net capital gains and therefore does not anticipate incurring
a Federal income tax liability.
Distributions
Dividends paid out of the Fund's investment company taxable income will be
taxable to a U.S. shareholder as ordinary income. Distributions of net capital
gains, if any, designated as capital gain dividends are taxable as long-term
capital gains, regardless of how long the shareholder has held the Fund's
shares, and are not eligible for the dividends-received deduction. Shareholders
receiving distributions in the form of additional shares, rather than cash,
generally will have a cost basis in each such share equal to the net asset value
of a share of the Fund on the reinvestment date. Shareholders will be notified
annually as to the U.S. Federal tax status of distributions. Shareholders should
consult their own tax adviser concerning the application of Federal, state and
local taxes to the distributions they receive from the Fund.
Taxation of the Portfolio
The Portfolio is not subject to the Federal income taxation. Instead, the Fund
and other investors investing in the Portfolio must take into account, in
computing their Federal income tax liability, their share of the Portfolio's
income, gains, losses, deductions, credits and tax preference items, without
regard to whether they have received any cash distributions from the Portfolio.
Foreign Withholding Taxes
Income received by the Portfolio from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries.
Backup Withholding
The Fund may be required to withhold U.S. Federal income tax at the rate of 31%
of all taxable distributions payable to shareholders who fail to provide the
Fund with their correct taxpayer identification number or to make required
certifications, or who have been notified by the Internal Revenue Service that
they are subject to backup withholding. Corporate shareholders and certain
other shareholders specified in the Code generally are exempt from such backup
withholding. Backup withholding is not an additional tax. Any amounts withheld
may be credited against the shareholder's U.S. Federal income tax liability.
Foreign Shareholders
The tax consequences to a foreign shareholder of an investment in the Fund may
be different from those described herein. Foreign shareholders are advised to
consult their own tax advisers with respect to the particular tax consequences
to them of an investment in the Fund.
31
<PAGE>
Other Taxation
The Trust is organized as a Massachusetts business trust and, under current law,
neither the Trust nor the Fund is liable for any income or franchise tax in the
Commonwealth of Massachusetts, provided that the Fund continues to qualify as a
regulated investment company under Subchapter M of the Code.
The Portfolio is organized as a New York trust. The Portfolio is not subject to
any income or franchise tax in the State of New York or the Commonwealth of
Massachusetts.
FINANCIAL STATEMENTS
The financial statements for the Fund and the Portfolio for the fiscal year
ended March 31, 1999, are incorporated herein by reference to the Annual Report
to shareholders of the Fund dated March 31, 1999 (File Nos. 33-45973 and 811-
06576). A copy of the Annual Report may be obtained without charge by contacting
the Fund.
32
<PAGE>
APPENDIX
BOND AND COMMERCIAL PAPER RATINGS
Set forth below are descriptions of ratings which represent opinions as to the
quality of the securities. It should be emphasized, however, that ratings are
relative and subjective and are not absolute standards of quality.
Moody's Investors Service, Inc.'s Corporate Bond Ratings
Aaa: Bonds which are 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-
edged". 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 which are 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 fluctuations of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risk appear somewhat larger than in Aaa securities.
A: Bonds which are 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 which are 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 which are 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 safe-guarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the 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 which are 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 which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Note: Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating 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.
Moody's Investors Service, Inc.'s Short-Term Debt Ratings
Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually promissory obligations not having an original maturity in excess of
one year.
33
<PAGE>
Issuers rated Prime-1 or P-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 or P-1
repayment ability will often be evidenced by many of the following
characteristics:
. Leading market positions in well established industries.
. High rates of return on funds employed.
. Conservative capitalization structure 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 P-2 (or supporting institutions) have a strong ability
for repayment of senior short-term debt 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, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Standard & Poor's Ratings Group's Corporate Bond Ratings
Investment Grade
AAA: Debt rated AAA has the highest rating assigned by S&P'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 than bonds in higher rated categories.
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 a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
Speculative Grade
Debt rated BB, B, CCC, CC, and C is regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal. BB
indicates the least degree of speculation and C the highest. While such debt
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major exposures to adverse conditions.
BB: Debt rated 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. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
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 or 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
34
<PAGE>
event of adverse business, financial, or economic conditions, it is not likely
to have the capacity to pay interest and repay principal.
The CCC rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied B or B- rating.
CC: The rating 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.
C1: The Rating C1 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 Standard & Poor's believes that
such payments will be made during such grace period. The D rating also will 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.
NY: Bonds may lack a S&P's rating because no public rating has been requested,
because there is insufficient information on which to base a rating, or because
S&P's does not rate a particular type of obligation as a matter of policy.
Standard & Poor's Ratings Group's Commercial Paper Ratings
A: S&P's commercial paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market.
A-1: This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus (+) sign designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1 ".
A-3: Issues carrying this designation have adequate capacity for timely payment.
They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
Fitch Investors Service, Inc. Bond Ratings
Investment Grade
AAA: Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA: Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated "AAA". Because bonds rated in the
"AAA" and "AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated "F-1+".
A: Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
35
<PAGE>
BBB: Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however,
are more likely to have adverse impact on these bonds, and therefore, impair
timely payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
High Yield Grade
BB: Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B: Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC: Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC: Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C: Bonds are in imminent default in payment of interest or principal.
DDD, DD, and D: Bonds are in default of interest and/or principal payments.
Such bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. "DDD"
represents the highest potential for recovery on these bonds, and "D" represents
the lowest potential for recovery.
Plus (+) or Minus (-): The ratings from AA to C may be modified by the addition
of a plus or minus sign to indicate the relative position of a credit within the
rating category.
NR: Indicates that Fitch does not rate the specific issue.
Conditional: A conditional rating is premised on the successful completion of a
project or the occurrence of a specific event.
Fitch Investors Service, Inc.
Short-Term Ratings
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1: Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated "F-
1+".
F-2: Good Credit Quality. Issues assigned this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as great
as the "F-1+" and "F-1 " categories.
F-3: Fair Credit Quality. Issues assigned this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate, however,
near-term adverse changes could cause these securities to be rated below
investment grade.
36
<PAGE>
Duff & Phelps Bond Ratings
Investment Grade
AAA: Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+, AA, and AA-: High credit quality. Protection factors are strong. Risk is
modest but may vary slightly from time to time because of economic conditions.
A+, A, and A-: Protection factors are average but adequate. However, risk
factors are more variable and greater in periods of economic stress.
BBB+, BBB, and BBB-: Below average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.
High Yield Grade
BB+, BB, and BB-: Below investment grade but deemed likely to meet obligations
when due. Present or prospective financial protection factors fluctuate
according to industry conditions or company fortunes. Overall quality may move
up or down frequently within this category.
B+, B, and B-: Below investment grade and possessing risk that obligations will
not be met when due. Financial protection factors will fluctuate widely
according to economic cycles, industry conditions and/or company fortunes.
Potential exists for 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.
Preferred stocks are rated on the same scale as bonds but the preferred rating
gives weight to its more junior position in the capital structure. Structured
financings are also rated on this scale.
Duff & Phelps Paper/Certificates of Deposit Ratings
Category 1: Top Grade
Duff 1 plus: Highest certainty of timely payment. Short-term liquidity
including internal operating factors and/or ready access to alternative sources
of funds, is outstanding, and safety is just below risk-free U.S. Treasury
short-term obligations.
Duff 1: Very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are minor.
Duff 1 minus: High certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small.
Category 2: Good Grade
Duff 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.
Category 3: Satisfactory Grade
Duff 3: Satisfactory liquidity and other protection factors qualify issue as to
investment grade. Risk factors are larger and subject to more variation.
Nevertheless timely payment is expected.
No ratings are issued for companies whose paper is not deemed to be of
investment grade.
37
<PAGE>
_________________________________
Bonds which are unrated expose the investor to risks with respect to capacity to
pay interest or repay principal which are similar to the risks of lower-rated
bonds. The Fund is dependent on the investment adviser's or investment sub-
adviser's judgment, analysis and experience in the evaluation of such bonds.
Investors should note that the assignment of a rating to a bond by a rating
service may not reflect the effect of recent developments on the issuer's
ability to make interest and principal payments.
Note:
1 The ratings indicated herein are believed to be the most recent ratings
available at the date of this SAI for the securities listed. Ratings are
generally given to securities at the time of issuance. While the rating
agencies may from time to time revise such ratings, they undertake no
obligation to do so, and the ratings indicated do not necessarily represent
ratings which would be given to these securities on the date of the Fund's
fiscal year end.
38
<PAGE>
Investment Adviser of the Portfolio and Administrator
BANKERS TRUST COMPANY
Distributor
ICC DISTRIBUTORS, INC.
Custodian and Transfer Agent
BANKERS TRUST COMPANY
Independent Accountants
PRICEWATERHOUSECOOPERS LLP
Counsel
WILLKIE FARR & GALLAGHER
____________________
No person has been authorized to give any information or to make any
representations other than those contained in the Trust's Prospectus, its SAI or
the Trust's official sales literature in connection with the offering of the
Trust's shares and, if given or made, such other information or representations
must not be relied on as having been authorized by the Trust. Neither the
Prospectus nor this SAI constitutes an offer in any state in which, or to any
person to whom, such offer may not lawfully be made.
____________________
CUSIP #055847404
STA 482400 (7/99)
<PAGE>
PART C - OTHER INFORMATION
ITEM 23. Exhibits.
(a) Declaration of Trust of the Trust; 1
(i) Eighth Amended and Restated Establishment and Designation of
Series; 2
(b) By-Laws of the Trust; 1
(c) Instruments Defining Rights of Security Holders; Not Applicable;
(d) Investment Advisory Agreement; 2
(i) Exhibit A to Investment Advisory Agreement; 2
(e) Distribution Agreement; 3
(f) Bonus/Profit Sharing Contracts - Not Applicable;
(g) Custodian Agreement between Registrant and Bankers Trust Company; 4
(i) Amendment #1 to Exhibit A to the Custodian Agreement between
the Registrant and Bankers Trust Company; 5
(ii) Cash Services Agreement between the Registrant and Bankers Trust
Company; 6
(h) Administration and Services Agreement; 7
(i) Exhibit D to Administration and Services Agreement; 3
(ii) Amended and Restated Shareholder Services Plan for BT
PreservationPlus Fund; 3
(iii) Agreement to Provide Shareholder Services for BT
PreservationPlus Fund; 3
(iv) Expense Limitation Agreement; 9
(v) Expense Limitation Agreement on behalf of BT Investment Money
Market and BT Investment Equity 500 Index Funds; 10
(vi) Expense Limitation Agreements on behalf of BT Institutional
Asset Management Fund; filed herewith
(i) Not applicable;
(j) Consent of Independent Accountants - filed herewith;
(k) Omitted Financial Statements - Not Applicable;
(l) Investment representation letters of initial shareholders of the Trust;
8
(m) Rule 12b-1 Plans - Not applicable;
(n) Financial Data Schedules - Not Applicable;
(o) Rule 18f-3 Plan (Multiple Class Expense Allocation); 2
(i) Revised Multiple Class Expense Allocation Plan; 5
- -----------------------------------
1. Incorporated by reference to Post-Effective Amendment No. 5 to
Registrant's Registration Statement as filed with the Commission on
July 31, 1995.
2. Incorporated by reference to Post-Effective Amendment No. 14 to
Registrant's Registration Statement as filed with the Commission on
February 25, 1997.
<PAGE>
3. Incorporated by reference to Post-Effective Amendment No. 22 to
Registrant's Registration Statement as filed with the Commission on
November 24, 1998.
4. Incorporated by reference to Post-Effective Amendment No. 18 to
Registrant's Registration Statement as filed with the Commission July
1, 1997.
5. Incorporated by reference to Post-Effective Amendment No. 19 to
Registrant's Registration Statement as filed with the Commission on
January 28, 1998.
6. Incorporated by reference to Post-Effective Amendment No. 21 to
Registrant's Registration Statement as filed with the Commission on
June 30, 1998.
7. 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 herein to Pre-Effective Amendment No. 1 to
Registrant's Registration Statement as filed with the Commission on
June 9, 1992.
9. Incorporated by reference to Post-Effective Amendment No. 25 to
Registrant's Registration Statement as filed with the Commission on
January 28, 1999.
10. Incorporated by reference to Post-Effective Amendment No. 27 to
Registrant's Registration Statement as filed with the Commission on
April 30, 1999.
ITEM 24. Persons Controlled by or Under Common Control with Registrant.
Not applicable.
ITEM 25. Indemnification.
Incorporated by reference to Post-Effective Amendment No. 38 to Registrant's
Registration Statement as filed with the Commission on April 29, 1996.
ITEM 26. Business and Other Connections of Investment Adviser.
Bankers Trust serves as investment adviser to the Portfolio. Bankers Trust, a
New York banking corporation, is a wholly owned subsidiary of Bankers Trust New
York 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 engaged in any
<PAGE>
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 to
our knowledge as of July 27, 1999, are engaged in any other business,
profession, vocation or employment of a substantial nature.
Josef Ackermann
Chairman of the Board, Chief Executive Officer and President, Bankers Trust;
Member, Board of Managing Directors, Deutsche Bank AG. Address: Deutsche Bank
AG, Taunusanlage 12, D-60262 Frankfurt am Main, Federal Republic of Germany.
Hans Angermueller
Director, Bankers Trust; Director of various corporations; Shearman and
Sterling, of counsel. Address: Shearman & Sterling, 599 Lexington Avenue, New
York, New York 10022
George B. Beitzel
Director, Bankers Trust and Bankers Trust Corporation since 1977; Director of
various corporations. Address: 29 King Street, Chappaqua, New York 10514-3432.
William R. Howell
Director, Bankers Trust; Chairman Emeritus, J.C. Penney Company, Inc.; Director
of various corporations. Address: J.C. Penney Company, Inc., P.O. Box 10001,
Dallas, Texas 74301-1109.
Hermann-Josef Lamberti
Director, Bankers Trust; Member, Board of Managing Directors, Deutsche Bank AG.
Address: Deutsche Bank AG, Taunusanlage 12, D-60262 Frankfurt am Main, Federal
Republic of Germany.
John A. Ross
Director, Bankers Trust; Regional Chief Executive Officer, Deutsche Bank
Americas Holding Corp. Address: Deutsche Bank, 31 West 52nd Street, New York,
New York 10019.
Ronaldo H. Schmitz
Director, Bankers Trust; Member, Board of Managing Directors, Deutsche Bank AG.
Address: Deutsche Bank AG, Taunusanlage 12, D-60262 Frankfurt am Main, Federal
Republic of Germany.
Item 27. Principal Underwriters.
<PAGE>
(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, BT
Investment Funds, Cash Management Portfolio, Intermediate Tax Free
Portfolio, NY Tax Free Money Portfolio, Treasury Money Portfolio,
International Equity Portfolio, Equity 500 Index Portfolio, Capital
Appreciation Portfolio, Asset Management Portfolio, BT Investment
Portfolio, BT Alex. Brown Cash Reserve Fund, Flag Investors
Communications Fund, Inc., Flag Investors International Fund, Inc.,
Flag Investors emerging Growth Fund, Inc., Total Return U.S. Treasury
Fund, Inc., Managed Municipal Fund, Inc., Flag Investors
Short-Intermediate Income Fund, Inc., Flag Investors Value Builder
Fund, Inc., Flag Investors Real Estate Securities Fund, Inc. and Flag
Investors Equity Partners Fund, Inc.
(b) Unless otherwise stated, the principal business address for the
following persons is Two Portland Square, Portland, Maine 04101.
Name and Positions and Positions and
Principal Business Offices with Offices with
Address Distributor Registrant
John Y. Keffer President None
Sara M. Morris Treasurer None
David I. Goldstein Secretary None
Benjamin L. Niles Vice President None
Margaret J. Fenderson Assistant Treasurer None
Dana L. Lukens Assistant Secretary None
Nanette K. Chern Chief Compliance Officer None
(c) None
ITEM 28. Location of Accounts and Records.
BT Investment Funds: BT Alex. Brown
(Registrant) One South Street
Baltimore, MD 21202
Bankers Trust Company: 130 Liberty Street
(Custodian, Investment Adviser New York, NY 10006
and Administrator)
Investors Fiduciary 127 West 10th Street,
Trust Company: Kansas City, MO 64105.
<PAGE>
ICC Distributors, Inc.: Two Portland Square
(Distributor) Portland, ME 04101
ITEM 29. Management Services.
Not Applicable
ITEM 30. Undertakings.
Not Applicable
<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, as amended, and has duly caused this Amendment to its
Registration Statement to be signed on its behalf by the undersigned, duly
authorized, in the City of Baltimore and the State of Maryland on this 27th day
of July, 1999.
BT PYRAMID MUTUAL FUNDS
By: /s/ Daniel O. Hirsch
Daniel O. Hirsch, Secretary
July 27, 1999
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registrant's Registration Statement has been signed below by
the following persons in the capacity and on the date indicated:
NAME TITLE DATE
By: /s/ DANIEL O. HIRSCH Secretary July 27, 1999
Daniel O. Hirsch (Attorney in Fact
For the Persons Listed Below)
/s/ JOHN Y. KEFFER* President and
John Y. Keffer Chief Executive Officer
/s/ JOSEPH A. FINELLI* Treasurer (Principal
Joseph A. Finelli 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 - Incorporated by reference to Post-Effective Amendment
No. 26 to Registrant's Registration Statement as filed with the Commission on
February 26, 1999.
<PAGE>
**By Power of Attorney - Incorporated by reference to Post-Effective Amendment
No. 15 to Registrant's Registration Statement as filed with the Commission on
March 17, 1997.
<PAGE>
ASSET MANAGEMENT PORTFOLIO has duly caused this Post-Effective Amendment
No. 29 to the Registration Statement on Form N-1A of BT Pyramid Mutual Funds to
be signed on its behalf by the undersigned authorized in the City of Baltimore
and the State of Maryland on the 27th day of July, 1999.
ASSET MANAGEMENT PORTFOLIO
By: /s/ Daniel O. Hirsch
Daniel O. Hirsch, Secretary
July 27, 1999
This Post-Effective Amendment No. 29 to the Registration Statement of BT Pyramid
Mutual Funds has been signed below by the following persons in the capacities
indicated with respect to ASSET MANAGEMENT PORTFOLIO.
NAME TITLE DATE
By: /s/ DANIEL O. HIRSCH Secretary July 27, 1999
Daniel O. Hirsch (Attorney in Fact
For the Persons Listed Below)
/s/ JOHN Y. KEFFER* President and
John Y. Keffer Chief Executive Officer
/s/ JOSEPH A. FINELLI* Treasurer (Principal
Joseph A. Finelli 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 - Incorporated by reference to Post-Effective Amendment
No. 26 to Registrant's Registration Statement as filed with the Commission on
February 26, 1999.
**By Power of Attorney - Incorporated by reference to Post-Effective Amendment
No. 15 to Registrant's Registration Statement as filed with the Commission on
March 17, 1997.
<PAGE>
EXPENSE LIMITATION AGREEMENT
THIS EXPENSE LIMITATION AGREEMENT is made as of the 31st day of March, 1999, by
and between BT PYRAMID MUTUAL FUNDS, a Massachusetts Business trust (the
"Trust") and ASSET MANAGEMENT PORTFOLIO, a New York trust (a "Portfolio Trust"),
and BANKERS TRUST, a New York corporation (the "Adviser"), with respect to the
following:
WHEREAS, the Adviser serves as Investment Adviser to BT Pyramid Mutual Funds and
Asset Management Portfolio pursuant to Investment Advisory Agreements dated
August 6, 1996 and April 8, 1992, respectively, and each as re-approved
thereafter; and the Adviser serves as the Trust's Administrator pursuant to an
Administration and Services Agreement dated October 28, 1992, as amended,
(collectively, the "Agreements"); and
WHEREAS, the Adviser has voluntarily agreed, under the Agreements, to waive its
fees and reimburse expenses so that the total operating expenses for the Trust's
series (the "Fund") and the Portfolio Trust's series (the "Portfolio") will not
exceed the percentage of average daily net assets as set forth on Exhibit A; and
WHEREAS, the Trust and the Adviser desire to formalize this voluntary fee waiver
and expense reimbursement arrangement for a 16-month period beginning on March
31, 1999 and ending on July 31, 2000.
NOW, in consideration of the mutual covenants herein contained and other good
and valuable consideration, the receipt whereof is hereby acknowledged, the
parties hereto agree as follows:
1. The Adviser agrees to waive its fees and reimburse expenses for a
16-month period from March 31, 1999 to July 31, 2000, to the extent
necessary so that the Fund's total annual operating expenses do not
exceed the percentage of average daily net assets set forth on Exhibit
A.
2. Upon the termination of the Investment Advisory Agreement or the
Administration Agreement, this Agreement shall automatically terminate.
<PAGE>
3. Any question of interpretation of any term or provision of this
Agreement having a counterpart in or otherwise derived from a term or
provision of the Investment Company Act of 1940 (the "1940 Act") shall
be resolved by reference to such term or provision of the 1940 Act and
to interpretations thereof, if any, by the United States Courts or in
the absence of any controlling decision of any such court, by rules,
regulations or orders of the Securities and Exchange Commission ("SEC")
issued pursuant to said Act. In addition, where the effect of a
requirement of the 1940 Act reflected in any provision of this
Agreement is revised by rule, regulation or order of the SEC, such
provision shall be deemed to incorporate the effect of such rule,
regulation or order. Otherwise the provisions of this Agreement shall
be interpreted in accordance with the laws of Massachusetts.
Exhibit A
Total Fund Operating Expenses
Fund (as a percentage of average daily net assets)
- ---- -----------------------------------------------
BT Institutional Asset Management Fund 0.60%
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their respective officers as of the day and year first
above written.
[SEAL]
BT PYRAMID MUTUAL FUNDS
Attest: /s/Amy M. Olmert By: /s/Daniel O. Hirsch
Name: Amy M. Olmert Name: Daniel O. Hirsch
Title: Secretary
ASSET MANAGEMENT PORTFOLIO
Attest: /s/Amy M. Olmert By: /s/Daniel O. Hirsch
Name: Amy M. Olmert Name: Daniel O. Hirsch
Title: Secretary
BANKERS TRUST
Attest: /s/Amy M. Olmert By: /s/Ross Youngman
Name: Amy M. Olmert Name: Ross Youngman
Title: Managing Director
<PAGE>
EXPENSE LIMITATION AGREEMENT
THIS EXPENSE LIMITATION AGREEMENT is made as of the 4th day of June, 1999, by
and between BT PYRAMID MUTUAL FUNDS, a Massachusetts Business trust (the
"Trust") and ASSET MANAGEMENT PORTFOLIO, a New York trust (a "Portfolio Trust"),
and BANKERS TRUST, a New York corporation (the "Adviser"), with respect to the
following:
WHEREAS, the Adviser serves as Investment Adviser to BT Pyramid Mutual Funds and
Asset Management Portfolio pursuant to Investment Advisory Agreements dated
August 6, 1996 and April 8, 1992, respectively, and each as re-approved
thereafter; and the Adviser serves as the Trust's Administrator pursuant to an
Administration and Services Agreement dated October 28, 1992, as amended,
(collectively, the "Agreements"); and
WHEREAS, the Adviser has voluntarily agreed, under the Agreements, to waive its
fees and reimburse expenses so that the total operating expenses for the Trust's
series (the "Fund") and the Portfolio Trust's series (the "Portfolio") will not
exceed the percentage of average daily net assets as set forth on Exhibit A; and
WHEREAS, the Trust and the Adviser desire to formalize this voluntary fee waiver
and expense reimbursement arrangement for a period beginning on June 4, 1999 and
ending on July 31, 2000.
NOW, in consideration of the mutual covenants herein contained and other good
and valuable consideration, the receipt whereof is hereby acknowledged, the
parties hereto agree as follows:
4. The Adviser agrees to waive its fees and reimburse expenses for a
period from June 4, 1999 to July 31, 2000, to the extent necessary so
that the Fund's total annual operating expenses do not exceed the
percentage of average daily net assets set forth on Exhibit A.
5. Upon the termination of the Investment Advisory Agreement or the
Administration Agreement, this Agreement shall automatically terminate.
6. Any question of interpretation of any term or provision of this
Agreement having a counterpart in or otherwise derived
<PAGE>
from a term or provision of the Investment Company Act of 1940 (the
"1940 Act") shall be resolved by reference to such term or provision of
the 1940 Act and to interpretations thereof, if any, by the United
States Courts or in the absence of any controlling decision of any such
court, by rules, regulations or orders of the Securities and Exchange
Commission ("SEC") issued pursuant to said Act. In addition, where the
effect of a requirement of the 1940 Act reflected in any provision of
this Agreement is revised by rule, regulation or order of the SEC, such
provision shall be deemed to incorporate the effect of such rule,
regulation or order. Otherwise the provisions of this Agreement shall
be interpreted in accordance with the laws of Massachusetts.
Exhibit A
Total Fund Operating Expenses
Fund (as a percentage of average daily net assets)
- ---- --------------------------------------------
BT Institutional Asset Management Fund 0.60%
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in duplicate by their respective officers as of the day and year first above
written.
[SEAL]
BT PYRAMID MUTUAL FUNDS
Attest: /s/Amy M. Olmert By: /s/Daniel O. Hirsch
Name: Amy M. Olmert Name: Daniel O. Hirsch
Title: Secretary
ASSET MANAGEMENT PORTFOLIO
Attest: /s/Amy M. Olmert By: /s/Daniel O. Hirsch
Name: Amy M. Olmert Name: Daniel O. Hirsch
Title: Secretary
BANKERS TRUST
Attest: /s/Amy M. Olmert By: /s/Ross Youngman
Name: Amy M. Olmert Name: Ross Youngman
Title: Managing Director
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 29 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated May 18, 1999, relating to the financial
statements and financial highlights appearing in the March 31, 1999 Annual
Report to Shareholders of BT Institutional Asset Management Fund, which is
incorporated by reference into the Registration Statement. We also consent to
the references to us under the heading "Independent Accountants" in such
Statement of Additional Information and under the heading "Financial Highlights"
in such Prospectus.
PricewaterhouseCoopers LLP
Baltimore, Maryland
July 23, 1999
