BT INVESTMENT FUNDS
Small Cap Fund
ANNUAL REPORT
SEPTEMBERo1996
Small Cap Fund
Table of Contents
Letter to Shareholders 3
Small Cap Fund
Statement of Assets and Liabilities 5
Statement of Operations 5
Statement of Changes in Net Assets 6
Financial Highlights 6
Notes to Financial Statements 7
Report of Independent Accountants 8
Small Cap Portfolio
Schedule of Portfolio Investments 9
Statement of Assets and Liabilities 11
Statement of Operations 11
Statement of Changes in Net Assets 12
Financial Highlights 12
Notes to Financial Statements 13
Report of Independent Accountants 15
Small Cap Fund
Letter to Shareholders
We are pleased to present you with this annual report for the BT Investment
Small Cap Fund, providing a review of the market, the portfolio, and our outlook
as well as a complete financial summary of the Fund's operations and a listing
of the Portfolio's holdings.
The Small Cap Fund (the "Fund") had a total return of 26.41% for the twelve
months ending September 30, 1996, as compared to 13.13% for the Russell 2000
Index and 18.40% for the Lipper Small Cap Growth Average. Since its inception
on October 21, 1993, the Fund has returned 133.85%, cumulatively.
MARKET ACTIVITY
In general, the last twelve months were a period of strong market performance.
It was also a time of economic uncertainty, market confusion, and major shifts
in investor psychology. In the first six months, signs of an economic slowdown
and the Federal Reserve Board's decision not to lower interest rates raised
fears that the economy might be heading for a recession and that companies'
earnings growth would decelerate or possibly even decline. In this environment,
the health care, energy, and financial services sectors performed well.
Economically sensitive sectors, such as producer durables, technology, and
consumer staples, underperformed. Smaller companies, viewed as more vulnerable
to economic slowdowns, underperformed both middle and large capitalization
companies for this period.
The prospect of relatively controlled economic growth led to a stock market
rally through most of the second calendar quarter, with small stocks
outperforming large and middle capitalization companies. This also caused the
better performing sectors of the market to change rapidly, with more
economically sensitive areas, such as consumer cyclicals, leading the way.
Later in the second quarter, investor sentiment changed course again, with
worries about accelerating economic growth, higher inflation, and the
possibility of a Federal Reserve Board interest rate hike. This resulted in a
sharp mid-summer sell-off in the equity markets; small cap stocks took the
largest beating. We firmly believe that this was a correction in a bull market
rather than a negative indicator. In fact, this correction lasted for less time
than did the three previous small cap corrections since 1990.
The equity markets recovered significantly in August and September, with the
technology, consumer staples, and financial sectors showing the most strength.
Small cap stocks were very resilient, with the majority of companies reporting
earnings that either met or exceeded expectations.
INVESTMENT REVIEW
The Fund outperformed its benchmark and its category average both since
inception and for the twelve month period. For the annual period, most of the
outperformance can be attributed to specific stock selection. As for sector
allocation, the Fund benefitted from its overweightings in health care and the
consumer area. However, the Fund had low exposure to other leading sectors, such
as energy and financial services. We continue to be overweighted in technology,
which, though lackluster for the year, has recently begun to outperform.
Our disciplined investment process allowed us to initiate or add to positions in
companies with strong prospects whose stocks may be hurt temporarily by the
market's volatility. For example, we added to our investment in Pediatrix
Medical, a physician practice management company focused on neonatology. As
investors sold growth stocks from May to July, the stock dropped sharply. We
believed Pediatrix's position as the industry leader had not changed. After the
market correction, the stock, in fact, recovered, and its growth prospects
remain bright.
For the last twelve months, we initiated a number of new investment themes. For
example, Life on the Net seeks companies integral to the use of the Internet and
corporate intranets. The Life Sciences Revolution theme exploits small
biotechnology companies moving from the development stage into production with
their drugs. We also increased the Fund's presence in the New Consumer,
America's Changing Leisure Time and Stores of Value themes when it became
apparent the consumer was beginning to spend again.
Objective
Seeks to provide long-term capital growth by investing primarily in equity
securities of smaller companies. Current income is a secondary goal.
Investment Instruments
Generally common stocks of smaller U.S. corporations and, to a lesser extent,
foreign corporations.
Ten Largest Stock Holdings
Transaction Systems Architects Nautica Enterprises, Inc.
National Data Corp. Dollar Tree Stores, Inc.
Pediatrix Medical Group Rational Software
Papa John's International Legato Systems
Sitel Corp. Saville Systems Plc.
Small Cap Fund
Letter to Shareholders
Diversification of Portfolio Investments-See Appendix
By Theme as of September 30, 1996 (percentages are based on market value)
Move to Outsourcing 7%
New Consumer 6%
Telecommunications 7%
Stores of Value 7%
Productivity Enhancements 6%
Client Server Computing 10%
Flourishing in the Managed Care Environment 8%
Managing the Info Age 10%
New Healthcare Paradigm 11%
Other 28%
MANAGER OUTLOOK
Bankers Trust is forecasting moderate growth in the economy, relatively stable
interest rates, and only slightly higher inflation. In this environment, small
cap stocks should continue to do well. More specifically, as earnings for large
cap stocks begin to slow with increasing global competition and the slowing of a
multiyear period of restructurings and resulting margin expansion, small caps
should outperform as their higher relative earnings growth is rewarded. We
believe, too, that we are still in an upward phase in this latest small cap
cycle, which started in late 1990. Despite robust earnings, the price/earnings
(P/E) multiples in the small cap sector remain very compelling both compared to
historical levels and as the P/E multiples remain at a discount to their larger
cap counterparts.
We expect some ongoing market volatility. We will, of course, continue
monitoring economic conditions and how they affect the financial markets, as we
seek long-term capital growth with current income as a secondary objective.
Mary Dugan and Tim Woods
Portfolio Managers of the
Small Cap Portfolio
September 30, 1996
Performance Comparison-see Appendix
Comparison of Change in Value of a $10,000 Investment in the BT Investment Small
Cap Fund and the Russell 2000 Index since October 31, 1993.
Total Return
Ended September 30, 1996
One Year Since 10/21/93*
26.41% 133.85%
* The Fund's inception date.
Investment return and principal value may fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
BT Small Cap $23,074 Russell 2000 Index $13,967
Oct-93 10000 10000
Dec-93 10326 10005
Mar-94 10375 9739
Jun-94 9951 9360
Sep-94 11451 10010
Dec-94 12320 9823
Mar-95 14107 10276
Jun-95 15903 11238
Sep-95 18263 12316
Dec-95 19535 12612
Mar-96 21049 13256
Jun-96 23181 13919
Sep-96 23074 13967
Past performance is not indicative of future performance.
Small Cap Fund
Statement of Assets and Liabilities September 30, 1996
Assets
Investment in Small Cap Portfolio, at Value $ 242,809,448
Receivable for Shares of Beneficial Interest Subscribed 245,188
Prepaid Expenses and Other 12,276
Total Assets 243,066,912
Liabilities
Due to Bankers Trust 145,195
Payable for Shares of Beneficial Interest Redeemed 610,097
Accrued Expenses and Other 75,391
Total Liabilities 830,683
Net Assets ($0.001 par value per share, unlimited number
of shares of beneficial interest authorized) $ 242,236,229
Composition of Net Assets
Paid-in Capital $ 177,057,815
Accumulated Net Realized Gain from Investments 4,403,294
Net Unrealized Appreciation on Investments 60,775,120
Net Assets, September 30, 1996 $ 242,236,229
Net Asset Value , Offering and Redemption Price Per Share
(net assets divided by shares outstanding) $ 21.66
Shares Outstanding 11,185,714
Statement of Operations For the year ended September 30, 1996
Investment Income
Loss Allocated from Small Cap Portfolio, net $ (94,845)
Expenses
Administration and Services 1,285,892
Shareholder Reports 26,845
Registration 66,249
Professional 11,840
Trustees 2,855
Miscellaneous 2,171
Total Expenses 1,395,852
Less: Expenses Absorbed by Bankers Trust (109,960)
Net Expenses 1,285,892
Net Investment Loss (1,380,737)
Realized and Unrealized Gain on Investments
Net Realized Gain from Investment Transactions 4,946,585
Net Change in Unrealized Appreciation on Investments 38,472,178
Net Realized and Unrealized Gain on Investments 43,418,763
Net Increase in Net Assets from Operations $ 42,038,026
See Notes to Financial Statements on Page 7
Small Cap Fund
Statement of Changes in Net Assets
For the
For the
year ended
year ended
September 30, 1996
September 30, 1995
Increase (Decrease) in Net Assets from:
Operations
Net Investment Loss $ (1,380,737)
$ (274,306)
Net Realized Gain from Investment Transactions 4,946,585
11,205,495
Net Change in Unrealized Appreciation on Investments 38,472,178
19,127,778
Net Increase in Net Assets from Operations 42,038,026
30,058,967
Distributions to Shareholders
Net Realized Gain from Investment Transactions (10,302,003)
-
Capital Transactions in Shares of Beneficial Interest
Proceeds from Sales of Shares 249,711,457
90,112,541
Dividend Reinvestments 7,579,445
-
Cost of Shares Redeemed (169,725,477)
(18,568,384)
Net Increase from Capital Transactions
in Shares of Beneficial Interest 87,565,425
71,544,157
Total Increase in Net Assets 119,301,448
101,603,124
Net Assets
Beginning of Year 122,934,781
21,331,657
End of Year $ 242,236,229
$ 122,934,781
Financial Highlights
Contained below are selected data for a share outstanding, total investment
return, other supplemental data and ratios to average net assets for the periods
indicated for the Small Cap Fund.
For the Period
October 21, 1993
For the year ended
(Commencement
September 30,
of Operations) to
1996 1995
September 30, 1994
Per Share Operating Performance:
Net Asset Value, Beginning of Period $18.50 $11.60
$10.00
Income from Investment Operations
Net Investment Loss (0.12) (0.04)
(0.03)
Net Realized and Unrealized Gain on Investments 4.65 6.94
1.63
Total from Investment Operations 4.53 6.90
1.60
Distributions to Shareholders
Net Realized Gain from Investment Transactions (1.37) -
-
Net Asset Value, End of Period $21.66 $18.50
$11.60
Total Investment Return 26.41% 59.48%
17.06%*
Supplemental Data and Ratios:
Net Assets, End of Period (000's omitted) $242,236 $122,935
$21,332
Ratios to Average Net Assets:
Net Investment Loss (0.70)% (0.46)%
(0.58)%*
Expenses, including Expenses of the Small Cap
Portfolio 1.25% 1.25%
1.25%*
Decrease Reflected in Above Expense Ratio Due
to Absorption of Expenses by Bankers Trust 0.22% 0.34%
0.86%*
* Annualized
See Notes to Financial Statements on Page 7
Small Cap Fund
Notes to Financial Statements
Note 1-Organization and Significant Accounting Policies
A. Organization
BT Investment Funds (the "Trust") is registered under the Investment Company Act
of 1940 (the "Act"), as amended, as an open-end management investment company.
The Trust was organized on July 21, 1986, as a business trust under the laws of
the Commonwealth of Massachusetts. The Small Cap Fund (the "Fund") is one of the
funds offered to investors by the Trust. The Fund commenced operations and began
offering shares of beneficial interest on October 21, 1993. The Fund invests
substantially all of its assets in the Small Cap Portfolio (the "Portfolio").
The Portfolio is an open-end management investment company registered under the
Act. The Fund seeks to achieve its investment objective by investing all of its
investable assets in the Portfolio. The value of such investment in the
Portfolio reflects the Fund's proportionate interest in the net assets of the
Portfolio. At September 30, 1996, the Fund's investment was 98.86% of the
Portfolio.
The financial statements of the Portfolio, including the Schedule of Portfolio
Investments, are contained elsewhere in this report.
B. Investment Income
The Fund earns income, net of expenses, daily on its investment in the Small Cap
Portfolio. All of the net investment income and realized an unrealized gains and
losses from the security transactions of the Portfolio are allocated pro rata
among the investors in the Portfolio at the time of such determination.
C. Dividends
It is the Fund's policy to declare and distribute dividends quarterly to
shareholders from net investment income, if any. Dividends and distributions
payable to shareholders are recorded by the Fund on the ex-dividend date.
Distributions of net realized short-term and long-term capital gains, if any,
earned by the Fund will be made annually to the extent they are not offset by
any capital loss carryforwards.
D. Federal Income Taxes
It is the Fund's policy to comply with the requirements of the Internal Revenue
Code. Therefore, no federal income tax provision is required. The Fund may
periodically make reclassifications among certain of its capital accounts as a
result of the timing and characterization of certain income and capital gains
distributions determined annually in accordance with federal tax regulations
which may differ from generally accepted accounting principles. For the year
ended September 30, 1996, $1,380,737 of accumulated net investment loss was
reclassified to paid-in-capital.
E. Other
The Trust accounts separately for the assets, liabilities, and operations of the
Fund. Expenses directly attributable to the Fund are charged to that Fund, while
expenses which are attributable to all of the Trust's funds are allocated among
them.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts in the financial statements.
Note 2-Fees and Transactions with Affiliates
The Fund has entered into an Administration and Services Agreement with Bankers
Trust Company ("Bankers Trust"). Under this Administration and Services
Agreement, Bankers Trust provides administrative, custody, transfer agency and
shareholder services to the Fund in return for a fee computed daily and paid
monthly at an annual rate of 0.65 of 1% of the Fund's average daily net assets.
For the year ended September 30, 1996, this fee aggregated $1,285,892.
On September 30, 1996, the Trust entered into a Distribution Agreement with
Edgewood Services, Inc. (`Edgewood''). Prior to September 30, Signature
Broker-Dealer Services, Inc. (`Signature'') was the Trust's distributor. Under
the Distribution Agreement with the Trust, pursuant to Rule 12b-1 of the 1940
Act, Edgewood, and previously Signature, may seek reimbursement, at an annual
rate not exceeding 0.20 of 1% of the Fund's average daily net assets, for
expenses incurred in connection with any activities primarily intended to result
in the sale of the Fund's shares. For the year ended September 30, 1996, there
were no reimbursable expenses incurred under this agreement.
Bankers Trust has voluntarily undertaken to waive and reimburse expenses of the
Fund, to the extent necessary, to limit all expenses to 0.65 of 1% of the
average daily net assets of the Fund, excluding expenses of the Portfolio and
1.25 of 1% of the average daily net assets of the Fund, including expenses of
the Portfolio. For the year ended September 30, 1996, expenses of the Fund have
been reduced by $109,960.
The Fund is subject to such limitations as may from time to time be imposed by
the Blue Sky laws of states in which of the Fund sells its shares. Currently,
the most restrictive jurisdiction imposes expense limitations of 2.50% of the
first $30,000,000 of the average daily net assets, 2.00% of the next
$70,000,000, and 1.50% of any excess over $100,000,000.
Certain trustees and officers of the Fund are also directors, officers and/or
employees of Edgewood and/or Signature. None of the trustees so affiliated
received compensation for services as trustee of the Fund. Similarly, none of
the Fund's officers received compensation from the Fund.
Note 3-Shares of Beneficial Interest
At September 30, 1996, there were an unlimited number of shares of beneficial
interest authorized. Transactions in shares of beneficial interest were as
follows:
For the For the
year ended year ended
September 30, 1996 September 30, 1995
Shares Amount Shares
Amount
Sold 12,796,190 $249,711,457 6,022,926
$90,112,541
Reinvested 439,133 7,579,445 -
-
Redeemed (8,695,218) (169,725,477) (1,216,232)
(18,568,384)
Net Increase 4,540,105 $87,565,425 4,806,694
$71,544,157
Small Cap Fund
Report of Independent Accountants
To the Trustees and Shareholders of BT Investment Funds:
We have audited the accompanying statement of assets and liabilities of the
Small Cap Fund (one of the Funds comprising BT Investment Funds) as of September
30, 1996, and the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period then
ended and the financial highlights for each of the two years in the period then
ended and for the period October 21, 1993 (commencement of operations) to
September 30, 1994. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
September 30, 1996 by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Small Cap Fund of BT Investment Funds as of September 30, 1996, the results of
its operations, the changes in its net assets and the financial highlights for
the periods referred to above, in conformity with generally accepted accounting
principles.
Coopers & Lybrand L.L.P.
Kansas City, Missouri
October 29, 1996
Small Cap Portfolio
Schedule of Portfolio Investments
Shares Description Value
Common Stocks - 96.21%
America's Changing Leisure Time - 5.64%
71,800 Applebees International, Inc. $ 1,902,700
31,900 Cinar Films, Inc. (a) 831,394
32,800 Interstate Hotels (a) 906,100
82,650 Papa John's International (a) 4,339,125
101,925 Regal Cinemas, Inc. (a) 2,548,125
144,200 Sodak Gaming, Inc. (a) 3,316,600
13,844,044
America's Industrial Renaissance - 0.74%
64,600 Greenwich Air Services 1,808,800
Client Server Computing - 9.81%
5,000 BT Group Plc., ADR (a) 235,000
17,100 Citrix Systems, Inc. (a) 876,375
36,300 Clarify, Inc. (a) 2,250,600
78,600 Indus Group, Inc. (a) 1,572,000
53,300 Industri-Matematik International Corp. (a) 659,587
115,200 Rational Software (a) 3,931,200
30,600 SS&C Technologies (a) 309,825
49,000 Sapient Corp. (a) 2,180,500
77,800 Structural Dynamics Research (a) 1,857,475
92,400 Systemsoft Corp. (a) 3,164,700
40,200 Veritas Software (a) 2,844,150
153,300 Versant Object Technology Corp. (a) 3,640,875
38,200 Xionics Document Technologies, Inc. (a) 573,000
24,095,287
Flourishing In the Managed Care
Environment - 8.18%
36,800 CRA Managed Care (a) 1,987,200
102,500 FPA Medical Management Inc. (a) 2,703,437
74,100 Henry Schein, Inc. (a) 2,852,850
116,400 Multicare Companies, Inc. (a) 2,531,700
40,400 NCS HealthCare, Inc. (a) 1,267,550
103,700 OccuSystems, Inc. (a) 3,111,000
47,300 Perclose, Inc. (a) 1,052,425
87,100 Renal Treatment Centers, Inc. (a) 2,896,075
39,100 Target Therapeutics (a) 1,671,525
20,073,762
Interactive Media - 3.82%
62,900 Inso Corp. (a) 3,412,325
64,500 The Providence Journal Company Cl. A (a) 1,894,687
51,000 Universal Outdoor Holdings, Inc. (a) 1,843,200
63,900 VideoServer, Inc. (a) 2,220,525
9,370,737
Life On the Net - 5.32%
79,800 Legato Systems, Inc. (a) 3,790,500
14,900 Security Dynamics Tech, Inc. (a) 1,069,075
62,500 Technology Modeling Association, Inc. (a) 812,500
113,400 Transaction Systems Architects (a) 4,791,150
58,400 VeriFone, Inc. (a) 2,613,400
13,076,625
Life Sciences Revolution - 4.47%
67,500 Agouron Pharmaceuticals (a) 2,944,687
85,100 Endovascular Technologies (a) 1,021,200
68,000 Human Genome Sciences (a) 2,567,000
39,500 Idexx Laboratories Corp. (a) 1,787,375
53,200 Martek Biosciences Corp. (a) 1,330,000
47,600 Spine-Tech, Inc. (a) 1,332,800
10,983,062
Shares Description Value
Managing the Information Age - 10.19%
35,800 Abacus Direct Corp. (a) $ 751,800
65,500 CCC Information Services Group (a) 1,375,500
126,100 Cheyenne Software, Inc. (a) 2,711,150
43,200 DSP Communications (a) 2,413,800
68,200 IDX Systems (a) 2,387,000
57,600 Metromail Corp. (a) 1,245,600
104,800 National Data Corp. 4,571,900
62,865 Pure Atria Corp. (a) 2,373,154
93,800 Sitel Corp. (a) 4,174,100
66,500 Visio Corp. (a) 3,025,750
25,029,754
Move to Outsourcing - 6.96%
42,600 Affiliated Computer Services (a) 2,502,750
81,200 Atlantic Southeast Airlines 1,786,400
84,500 Career Horizons, Inc. (a) 3,284,937
58,600 CoreStaff, Inc. (a) 1,567,550
101,500 HPR, Inc. (a) 1,624,000
57,000 MSC Industrial Direct (a) 2,030,625
61,800 Norrell Corp. 1,946,700
32,100 Pharmaceutical Product Development (a) 866,700
38,900 The Vincam Group, Inc. (a) 1,487,925
17,097,587
New Consumer - 6.30%
57,600 Blyth Industries, Inc. (a) 2,793,600
26,700 Boston Beer Company, Inc. (a) 517,313
19,400 Gargoyles, Inc. (a) 412,250
127,900 Nautica Enterprises, Inc. (a) 4,124,775
72,000 USA Detergents, Inc. (a) 2,862,000
70,400 Urban Outfitters, Inc. (a) 1,636,800
54,800 West Marine, Inc. (a) 1,808,400
46,400 Williams-Sonoma, Inc. (a) 1,316,600
15,471,738
New Health Care Paradigm - 11.21%
30,500 ABR Information Services, Inc. (a) 2,196,000
48,400 American Homepatient, Inc. (a) 1,076,900
33,000 Amerisource Health Corp. CI. A (a) 1,468,500
50,100 Applied Analytical Industries, Inc. (a) 1,139,775
33,900 Express Scripts (a) 1,228,875
90,800 Gulf South Medical Supply (a) 2,338,100
127,500 Mariner Health Group (a) 1,960,313
91,200 Pediatrix Medical Group (a) 4,571,400
113,200 Physician Sales & Service (a) 2,660,200
44,900 Rexall Sundown, Inc. (a) 1,638,850
82,900 Ro Tech Medical Corp. (a) 1,367,850
133,100 TheraTx, Inc. (a) 1,580,562
63,900 Total Renal Care Holdings (a) 2,540,025
83,700 Transition Systems (a) 1,757,700
27,525,050
Productivity Enhancement - 5.79%
58,000 Catalina Marketing Corp. (a) 3,088,500
22,900 Quick Response Services, Inc. (a) 853,025
20,600 Remedy Corp. (a) 1,648,000
103,500 Saville Systems Plc. (a) 3,648,375
81,100 Sawtek, Inc. (a) 2,108,600
16,400 Symbol Technologies (a) 754,400
44,900 Whittman-Hart, Inc. (a) 2,121,525
14,222,425
Return to Home Ownership - 0.28%
22,400 Ethan Allen, Inc. 697,200
See Notes to Financial Statements on Pages 13 and 14
Small Cap Portfolio
Schedule of Portfolio Investments September 30, 1996
Shares Description
Value
Stores of Value - 6.63%
73,000 Cost Plus, Inc. (a) $
1,688,125
105,700 Dollar Tree Stores Inc. (a)
4,069,450
21,400 Hot Topic, Inc. (a)
502,900
52,700 Just For Feet (a)
2,641,588
83,100 Petco Animal Supplies (a)
2,264,475
81,900 The Men's Wearhouse (a)
2,047,500
85,900 US Office Products Co. (a)
3,081,663
16,295,701
Telecommunications - 6.64%
4,900 Advanced Fibre Communication (a)
122,500
44,000 Aspect Telecommunication Corp. (a)
2,739,000
54,500 CSG Systems International, Inc. (a)
1,103,625
71,500 Digital Microwave Corp. (a)
1,644,500
78,000 ICG Communications, Inc. (a)
1,638,000
67,600 Lightbridge Inc. (a)
794,300
43,600 Orckit Communications, Ltd. (a)
801,150
95,800 P-COM, Inc. (a)
2,371,050
50,000 Premisys Communications (a)
1,837,500
86,400 Verilink Co. (a)
2,116,800
25,800 Westell Technologies, Inc. (a)
1,141,650
16,310,075
The Greying of America - 3.11%
51,200 ESC Medical Systems Ltd. (a)
1,638,400
90,250 Genesis Health Ventures Inc. (a)
2,538,281
Shares Description
Value
59,700 Sofamor Danek Group, Inc. (a) $
1,843,238
58,000 Sunrise Assisted Living (a)
1,624,000
7,643,919
The Ubiquitous Semiconductor- 1.12%
46,200 Microchip Technology (a)
1,726,725
59,200 USCS International, Inc. (a)
1,036,000
2,762,725
Total Common Stocks (Cost $175,410,470) $
236,308,491
Principal
Amount
SHORT-TERM INVESTMENTS - 5.37%
U.S. Treasury Bills - 5.37%
$ 3,105,000 5.12%, 10/24/96
3,095,168
10,190,000 5.00%, 12/05/96
10,099,482
Total Short Term Investments (Cost $13,192,508) $
13,194,650
Total Investments (Cost $188,602,978) - 101.58% $
249,503,141
Liabilities in Excess of Other Assets - (1.58%)
(3,888,050)
Net Assets - 100.00% $ 245,615,091
(a) Non-Income Producing Security
See Notes to Financial Statements on Pages 13 and 14
Small Cap Portfolio
Statement of Assets and Liabilities September 30, 1996
Assets
Investments, at Value (Cost of $188,602,978) $
249,503,141
Cash 174,574
Receivable for Securities Sold 599,261
Dividends and Interest Receivable 2,163
Prepaid Expenses and Other 165
Total Assets
250,279,304
Liabilities
Due to Bankers Trust 147,607
Payable for Securities Purchased 4,498,328
Accrued Expenses and Other 18,278
Total Liabilities 4,664,213
Net Assets $
245,615,091
Composition of Net Assets
Paid-in Capital $
184,714,928
Net Unrealized Appreciation on Investments 60,900,163
Net Assets, September 30, 1996 $
245,615,091
Statement of Operations For the year ended September 30, 1996
Investment Income
Dividends $ 55,426
Interest 1,042,653
Total Investment Income 1,098,079
Expenses
Advisory 1,293,449
Administration and Services 198,992
Professional 27,045
Trustees 2,718
Miscellaneous 2,925
Total Expenses 1,525,129
Less: Expenses Absorbed by Bankers Trust (331,176)
Net Expenses 1,193,953
Net Investment Loss (95,874)
Realized and Unrealized Gain on Investments
Net Realized Gain from Investment Transactions 4,944,264
Net Change in Unrealized Appreciation on Investments 38,597,216
Net Realized and Unrealized Gain on Investments 43,541,480
Net Increase in Net Assets from Operations $ 43,445,606
See Notes to Financial Statements on Pages 13 and 14
Small Cap Portfolio
Statement of Changes in Net Assets
For the For the
year ended year ended
September 30, 1996 September 30, 1995
Increase (Decrease) in Net Assets from:
Operations
Net Investment Income (Loss) $ (95,874) $ 114,355
Net Realized Gain from Investments 4,944,264 11,205,496
Net Change in Unrealized
Appreciation on Investments 38,597,216 19,127,783
Net Increase in Net Assets from Operations 43,445,606 30,447,634
Capital Transactions
Proceeds from Capital Invested 259,905,685 89,963,488
Value of Capital Withdrawn (181,564,152) (17,910,681)
Net Increase in Net Assets
from Capital Transactions 78,341,533 72,052,807
Total Increase in Net Assets 121,787,139 102,500,441
Net Assets
Beginning of Year 123,827,952 21,327,511
End of Year $ 245,615,091 $ 123,827,952
Financial Highlights
Contained below are selected supplemental data and ratios to average net assets
for the periods indicated for the Small Cap Portfolio.
For
the period
October 21, 1993
For the year ended (
Commencement
September 30, of
Operations) to
1996 1995
September 30, 1994
Supplemental Data and Ratios:
Net Assets, End of Period (000's omitted) $ 245,615 $ 123,828 $
21,328
Ratios to Average Net Assets:
Net Investment Income (Loss) (0.05)% 0.19%
0.07%*
Expenses 0.60% 0.60%
0.60%*
Decrease Reflected in Above Expense Ratios Due to
Absorption of Expenses by Bankers Trust 0.17% 0.19%
0.38%*
Portfolio Turnover Rate 159% 161%
154%
Average Commission Per Share** $ 0.048
* Annualized.
** For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for security trades
on which commissions are charged.
See Notes to Financial Statements on Pages 13 and 14
Small Cap Portfolio
Notes to Financial Statements
Note 1-Organization and Significant Accounting Policies
A. Organization
The Small Cap Portfolio (the `Portfolio'') is registered under the Investment
Company Act of 1940 (the `Act''), as amended, as an open-end management
investment company. The Portfolio was organized on August 6, 1993 as an
unincorporated trust under the laws of New York and commenced operations on
October 21, 1993. The Declaration of Trust permits the Board of Trustees (the
`Trustees'') to issue beneficial interests in the Portfolio.
B. Security Valuation
The Portfolio's investments listed or traded on National Stock Exchanges or
other domestic or foreign exchanges are valued based on the closing price of a
security traded on that exchange prior to the time when the Portfolio assets are
valued. Short-term obligations with remaining maturities of 60 days or less are
valued at amortized cost. Other short-term debt securities are valued on a mark-
to-market basis until such time as they reach a remaining maturity of 60 days,
whereupon they will be valued at amortized cost using their value on the 61st
day. All other securities and other assets are valued at their fair value as
determined in good faith under procedures established by and under the general
supervision of the Trustees.
C. Security Transactions and Investment Income
Security transactions are accounted for on a trade date basis. Dividend income
is recorded on the ex-dividend date. Interest income is recorded on the accrual
basis and includes amortization of premium and discount on investments. Realized
gains and losses from securities transactions are recorded on the identified
cost basis.
All of the net investment income and realized and unrealized gains and losses
from the securities transactions of the Portfolio are allocated pro rata among
the investors in the Portfolio at the time of such determination.
D. Repurchase Agreements
The Portfolio may enter into repurchase agreements with financial institutions
deemed to be creditworthy by the Portfolio's Investment Adviser, subject to the
seller's agreement to repurchase such securities at a mutually agreed upon
price. Securities purchased subject to repurchase agreements are deposited with
the Portfolio's custodian and pursuant to the terms of the repurchase agreement
must have an aggregate market value greater than or equal to the repurchase
price plus accrued interest at all times. If the value of the underlying
securities falls below the value of the repurchase price plus accrued interest,
the Portfolio will require the seller to deposit additional collateral by the
next business day. If the request for additional collateral is not met, or the
seller defaults on its repurchase obligation, the Portfolio maintains the right
to sell the underlying securities at market value and may claim any resulting
loss against the seller.
E. Federal Income Taxes
It is the Portfolio's policy to comply with the requirements of the Internal
Revenue Code. Therefore, no federal income tax provision is required.
F. Option Contracts
The Portfolio may enter into Option Contracts. Upon the purchase of a put option
or a call option by the Portfolio, the premium paid is recorded as an
investment, the value of which is marked-to-market daily to reflect the current
market value. When a purchased option expires, the Portfolio will realize a gain
or loss in the amount of the cost of the option. When the Portfolio enters into
a closing sale transaction, the Portfolio will realize a gain or loss depending
on whether the sale proceeds from the closing sale transaction are greater or
less than the cost of the option. When the Portfolio exercises a put option, it
realizes a gain or loss from the sale of the underlying security and the
proceeds from such sale will be decreased by the premium originally paid. When
the Portfolio exercises a call option, the cost of the security which the
Portfolio purchases upon exercise will be increased by the premium originally
paid.
G. Other
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts in the financial statements.
Note 2-Fees and Transactions with Affiliates
The Portfolio has entered into an Administration and Services Agreement with
Bankers Trust Company (`Bankers Trust''). Under this Administration and
Services Agreement, Bankers Trust provides administrative, custody, transfer
agency and shareholder services to the Portfolio in return for a fee computed
daily and paid monthly at an annual rate of 0.10 of 1% of the Portfolio's
average daily net assets. For the year ended September 30, 1996, this fee
aggregated $198,992.
The Portfolio has entered into an Advisory Agreement with Bankers Trust. Under
this Advisory Agreement, Bankers Trust manages the Portfolio in accordance with
the Portfolio's investment objective and stated investment policies in return
for a fee computed daily and paid monthly at an annual rate of 0.65 of 1% of the
Portfolio's average daily net assets. For the year ended September 30, 1996,
this fee aggregated $1,293,449.
Bankers Trust has voluntarily undertaken to waive and reimburse expenses of the
Portfolio to the extent necessary, to limit all expenses to 0.60 of 1% of the
average daily net assets of the Portfolio. For the year ended September 30,
1996, expenses of the Portfolio have been reduced by $331,176.
Small Cap Portfolio
Notes to Financial Statements
On September 30, 1996, the Trust entered into a Distribution Agreement with
Edgewood Services, Inc. (`Edgewood''). Prior to September 30, Signature Broker-
Dealer Services, Inc. (`Signature'') was the Trust's Distributor.
Certain trustees and officers of the Portfolio are also directors, officers
and/or employees of Edgewood and/or Signature. None of the trustees so
affiliated received compensation for services as trustee of the Portfolio.
Similarly, none of the Portfolio's officers received compensation from the
Portfolio.
For the year ended September 30, 1996, Small Cap Portfolio paid brokerage
commissions of $238,160.
Note 3-Purchases and Sales of Investment Securities
The aggregate cost of purchases and proceeds from sales of investments, other
than short-term obligations, for the year ended September 30, 1996 were
$369,914,922 and $289,341,209, respectively.
For federal income tax purposes, the tax basis of investments held at September
30, 1996 was $190,666,888. The aggregate gross unrealized appreciation for all
investments was $63,846,863 and the aggregate gross unrealized depreciation for
all investments was $5,010,610.
Small Cap Portfolio
Report of Independent Accountants
To the Trustees and Holders of Beneficial Interest of the Small Cap Portfolio:
We have audited the accompanying statement of assets and liabilities, including
the schedule of portfolio investments, of the Small Cap Portfolio (one of the
Portfolios comprising BT Investment Portfolios) as of September 30, 1996, and
the related statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended and the
financial highlights for each of the two years in the period then ended and for
the period October 21, 1993 (commencement of operations) to September 30, 1994.
These financial statements and financial highlights are the responsibility of
the Portfolio's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
September 30, 1996 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Small Cap Portfolio as of September 30, 1996, the results of its operations, the
changes in its net assets and the financial highlights for the periods referred
to above, in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Kansas City, Missouri
October 29, 1996
BT INVESTMENT FUNDS
Small Cap Fund
\For shareholder account information and current price and yield quotations,
shareholders may call their relationship manager or servicing agent.
Prospectuses containing more extensive information regarding the BT Investment
Funds may be obtained by calling or writing to Investors Fiduciary Trust Company
or Edgewood Services,Inc., the primary Servicing Agent and Distributor,
respectively, of BT Investment Funds:
BT Pyramid Mutual Funds
DST Systems, Inc.
210 West 10th St.
Kansas City, MO 64105
BT Investment Funds
Edgewood Securities, Inc.
Clearing Operations
P.O. Box 897
Pittsburgh, PA 15230-0897
You may write to the Small Cap Fund
at the following address:
BT Investment Funds
Clearing Operations
P.O. Box 897
Pittsburgh, PA 15230-0897
Small Cap Fund
Appendix
Pie Chart- Page 4
The graphic representation here displayed consists of a pie chart representing
the Diversification of Portfolio Investments by Theme in the Small Cap Portfolio
as of September 30, 1996. Each slice of the pie represents an investment Theme
and is sized according to the percentage of the Fund's investment in that Theme.
The Themes of investments and their percentages, starting at the top of the pie
and moving clockwise, are: Other- 28%; New Healthcare Paradigm-11%; Managing the
Info Age-10%; Flourishing in the Managed Care Environment-8%; Client Server
Computing-10%; Productivity Enhancements-6%; Stores of Value-7%;
Telecommunications-7%; New Consumer-6%; Move to Outsourcing-7%.
Line Graph-Page 4
The graphic representation here displayed consists of a boxed legend in the
upper left-hand corner of the corresponding line graph. The solid black line
represents BT Investment Small Cap Fund (the `Fund''); the dashed line
represents the Russell 2000 Index. The graph represents a comparison of change
in value of a $10,000 investment in the Fund and in the Russell 2000 Index
begining October 31, 1993. The `y'' axis reflects quarterly computation periods
from October 1993 to September 1996. The `x'' axis reflects investment values
in $2,000 increments ranging from $8,000 to $24,000.
