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- BT INVESTMENT FUNDS -
CAPITAL APPRECIATION FUND
SEMI-ANNUAL REPORT
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MARCH-1997
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CAPITAL APPRECIATION FUND
TABLE OF CONTENTS
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LETTER TO SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . 3
CAPITAL APPRECIATION FUND
Statement of Assets and Liabilities . . . . . . . . . . . . . . 6
Statement of Operations . . . . . . . . . . . . . . . . . . . . 6
Statement of Changes in Net Assets. . . . . . . . . . . . . . . 7
Financial Highlights. . . . . . . . . . . . . . . . . . . . . . 7
Notes to Financial Statements . . . . . . . . . . . . . . . . . 8
CAPITAL APPRECIATION 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
2
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CAPITAL APPRECIATION FUND
LETTER TO SHAREHOLDERS
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We are pleased to present you with this semi-annual report for the BT
Investment Capital Appreciation 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 Capital Appreciation Fund (the "Fund") had a total return of (15.73)%*
for the six months ended March 31, 1997, as compared to 4.48% for the S&P 400
Midcap Index** and 4.07% for the Lipper Growth Average+. Since its inception
on March 9, 1993, the Fund has returned 59.35% cumulatively, or 12.16%
annualized. The Fund returned (5.17)% for the year ended March 31, 1997.
OBJECTIVE
Seeks capital growth over the long term through investment in
growth-oriented medium-sized companies that show growth potential.
Current income is a secondary goal.
MARKET ACTIVITY
In sharp contrast to the strong performance, growth-oriented market trends, and
high investor optimism of the previous semi-annual period, the six months ended
March 31, 1997 may best be characterized by a "glass half empty" point of view,
with investors focusing more on what may go wrong with an investment than on
what will go right. Specifically, investors have been intensely concerned with
inflation pressures, corporate earnings, and market valuation levels.
Exacerbating concerns about overall stock market valuations were Federal Reserve
Board Chairman Alan Greenspan's "irrational exuberance" comments. The direction
of interest rates also tempered investor enthusiasm, as most high profile
investors and market strategists anticipated Federal Reserve Board tightening
and expressed reservations about its consequent effects on economic growth and
earnings performance. On March 25, 1997, the fed funds rate was, in fact,
raised by 0.25%. Overall, volatility during the semi-annual period was higher
than in the recent past.
These market trends and perceptions largely contributed to investors' aversion
to high growth, mid cap stocks. Instead, investors preferred the perceived
safety of larger, mature companies as well as lower multiple/lower growth,
value-oriented stocks. In turn, high growth, mid cap companies were under
constant selling pressure, despite the fact that their fundamentals remain
sound. Higher growth sectors within the market, such as technology, health
care, and communications were particularly hard hit. In all, value sharply
outperformed growth for the six month period, and the S&P 400 Midcap Index
lagged the large cap segment of the market but outperformed the small cap
sector.
INVESTMENT INSTRUMENTS
Generally growth-oriented stocks of medium-sized U.S. corporations
and, to a lesser extent, foreign corporations.
INVESTMENT REVIEW
The Fund's relative underperformance can be attributed to style and sector
positioning. As growth managers, we generally overweight the Fund in those
sectors that we believe will exhibit superior earnings growth over the long
term, including technology, health care, and communications--each of which
performed poorly during this period. Technology was hurt by concerns about
earnings shortfalls from several large and visible market leaders. Health care
was hurt by mounting concerns about both potential reimbursement cuts related to
Medicare reform and the possibility of renewed attempts at health care reform.
New realities of a competitive market in the communications industry impacted
this sector. The Fund's underperformance can also be partly attributed to its
underweighted position in more value-oriented sectors such as consumer staples,
financials, and transportation, each of which performed well during these six
months.
On the other hand, our sell discipline helped the Fund during this extremely
difficult investment climate for managers of mid cap growth portfolios. For
example, we sold the Fund's holdings of Pure Atria Software, a company
providing products that help to automate the creation of software
applications. Our fundamental checks indicated that there was trouble with
the integration of the recently merged Atria Software and Pure Software
companies and that earnings were in jeopardy. We sold the Fund's position at
$27, and in fact, the stock has recently traded at $10. We also trimmed the
Fund's exposure to the energy sector early in 1997 due to somewhat extended
valuations. This move proved timely, given the sell-off in this sector
during February, as seasonal factors dominated. Still, we remain very
positive about the long-term prospects of the energy sector, especially the
oil field services stocks.
TEN LARGEST STOCK HOLDINGS
Ace Ltd. Tidewater, Inc.
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Fruit of the Loom, Inc. Global Marine, Inc.
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Culligan Water Technologies QUALCOMM, Inc.
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BJ Services Co. McKesson Corp.
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Everest Reinsurance Holdings., Inc. ENSCO International, Inc.
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We also exploited the period's volatility to the Fund's advantage, using
periods of weakness to initiate or add to positions in companies with strong
future prospects. For example, we added to the Fund's holdings in Allen
Telecom, a provider of wireless telecommunications products and services.
Our checks with the company showed that business was quite robust and that
sales and earnings were going to be slightly better than expected. In fact,
the market has subsequently started to recognize this opportunity as well.
We are in the process of developing two new themes for the Fund. Clean
Water: The Next Scarce Resource, for instance, focuses on the fact that
demand for clean water for both consumption and industrial uses is growing
very rapidly, while the ability to supply this water has not kept up the
pace. The business of supplying water and equipment is undergoing both a
market expansion and a competitive
- ---------------
* Performance quoted represents past performance. Investment return and
principal value will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
** Indexes are unmanaged, and investments cannot be made in an index.
+ Lipper figures represent the average of the total returns reported by all
of the mutual funds designated by Lipper Analytical Services, Inc. as
falling into the respective categories indicated. These figures do not
reflect sales charges.
3
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CAPITAL APPRECIATION FUND
LETTER TO SHAREHOLDERS
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DIVERSIFICATION OF PORTFOLIO INVESTMENTS
By Theme as of March 31, 1997
(PERCENTAGES ARE BASED ON MARKET VALUE)
[CHART]
America's Industrial Renaissance 7%
Telecommunications 7%
Life Sciences Revolution 11%
Our Strengthening Financial Structure 11%
New Healthcare Paradigm 12%
Client-Server Computing 6%
New Consumer 4%
Environmental Crisis 4%
Life On the Net 4%
Other 20%+
Re-Energizing America 14%
- ---------------
+ Includes cash and themes with weightings of less than 4%.
consolidation, which we believe will lead to more profitable and better managed
companies. Cutting the Cord: The Wireless Opportunity is a theme based on the
premise that the combination of global deregulation, increasing competition, new
wireless providers, and the shift from analog to digital will lead to a
prolonged spending cycle in wireless telecommunications equipment.
Our investment themes for the Fund continue to point to potentially
attractive investment opportunities. The Life Sciences Revolution includes
selected biotechnology and drug companies that should benefit from improved
profitability and an unprecedented number of drugs in late-stage clinical
trials. Re-Energizing America includes energy service companies, which should
see strong earnings growth as a result of strong exploration and production
spending in 1997 as well as robust demand for natural gas and oil in emerging
markets worldwide. The New Healthcare Paradigm focuses on value-added
medical device, managed care, and health care information services companies,
which should be strong as the need to measure cost and quality continues to
be a major industry challenge. Stores of Value and the New Consumer, which
look at strong retail operators, should benefit from continued strong
economic growth and high consumer confidence levels. We are also developing
another investment theme for the Fund that will seek to capitalize on the
increasing usage of technology coupled with a shortage of skilled workers to
implement and manage that technology.
MANAGER OUTLOOK
While we are disappointed with the recent performance of the
Fund, there are several reasons why we think the long-term outlook remains
promising for mid cap companies that generate superior and consistent
earnings growth. First, absolute and relative valuation levels of these
growth companies have retreated to levels not seen in three or four years.
The broad correction experienced by many of these companies can be seen in
the fact that of 1,550 mid cap stocks measured, the average stock is down 20%
from its high, and within the S&P 400 Midcap Index, the average stock is down
18% from its high. These statistics highlight the valuation contraction
experienced by the mid cap universe that has not been captured within the
performance of the Index alone.
Second, despite investors' aversion to growth companies, the fundamentals have
not really changed. Throughout this period of uncertainty, our continued
contacts with and monitoring of managements of mid cap companies indicate that
business is strong and earnings growth remains intact. We believe that this
combination of reasonable valuation levels with sound fundamentals should bode
well for the mid cap segment of the market over the longer term.
Finally, our outlook for the economy leads us to be positive. We are
forecasting GDP growth in the area of 2.5-3.0% for calendar 1997, with
interest rates and inflation moving slightly higher. Provided the Federal
Reserve Board's interest rate hikes do not stall economic growth, mid cap
growth companies should continue to perform well from an earnings standpoint.
While we do expect continued volatility throughout the year, historically,
investors have been willing to pay for reasonably priced earnings growth, and
the mid cap sector has time-proven attractive return potential.
As always, our strategy is to remain true to the philosophy and growth
disciplines that have benefited the Fund's investors over the long-term
investment horizon so necessary in this asset class. We continue to focus on:
- - in-depth, fundamental research to identify companies with consistent,
strong earnings and revenue growth
- - a thematic approach and screening process to help us identify unrecognized
growth companies and/or sectors
- - capitalizing on market volatility by initiating or adding to positions in
solid companies at reasonable prices, and
- - a sell discipline that helps to mitigate risk in the portfolio.
We will, of course, continue monitoring economic conditions and how they affect
the financial markets, as we seek capital growth over the long term, with
current income as a secondary objective.
We value your ongoing support of the BT Investment Capital Appreciation Fund
and look forward to continuing to serve your investment needs in the years
ahead.
/s/ Anthony Takazawa
Anthony Takazawa
Portfolio Manager of the
CAPITAL APPRECIATION PORTFOLIO
March 31, 1997
4
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CAPITAL APPRECIATION FUND
PERFORMANCE COMPARISON
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COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE CAPITAL
APPRECIATION FUND AND THE S&P 400 INDEX SINCE MARCH 31, 1993.
TOTAL RETURN FOR THE PERIOD
ENDED MARCH 31, 1997
Six Months Since 3/9/93*
(15.73)% 59.35%
* 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.
[GRAPH]
BT Investment Capital
Appreciation Fund - $15,919 S&P 400 Index - $16,358
Mar-93 10000 10000
Jun-93 10519 10233
Sep-93 11838 10747
Dec-93 11708 11034
Mar-94 11409 10614
Jun-94 10699 10227
Sep-94 11728 10920
Dec-94 12088 10638
Mar-95 12857 11498
Jun-95 14266 12513
Sep-95 16813 13734
Dec-95 16612 13930
Mar-96 16786 14788
Jun-96 18070 15214
Sep-96 18890 15657
Dec-96 18055 16605
Mar-97 15919 16358
Past performance is not indicative of future performance.
5
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CAPITAL APPRECIATION FUND
STATEMENT OF ASSETS AND LIABILITIES MARCH 31, 1997 (UNAUDITED)
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<TABLE>
<S> <C>
ASSETS
Investment in Capital Appreciation Portfolio, at Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 45,336,657
Receivable for Shares of Beneficial Interest Subscribed. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,000
Prepaid Expenses and Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,711
---------------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,385,368
---------------
LIABILITIES
Due to Bankers Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,363
Payable for Shares of Beneficial Interest Redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,648
Accrued Expense and Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,004
---------------
Total Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101,015
---------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 45,284,353
---------------
---------------
COMPOSITION OF NET ASSETS
Paid-in Capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 43,179,437
Accumulated Net Investment Loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (642,968)
Accumulated Net Realized Loss from Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,072,445)
Net Unrealized Appreciation on Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,820,329
---------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 45,284,353
---------------
---------------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE (net assets divided by shares outstanding). . . . . . . . $ 12.30
---------------
---------------
SHARES OUTSTANDING ($0.001 par value per share, unlimited number of shares of beneficial interest authorized). . . 3,680,894
---------------
---------------
</TABLE>
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STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED MARCH 31, 1997 (UNAUDITED)
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<TABLE>
<S> <C>
INVESTMENT INCOME
Loss Allocated from Capital Appreciation Portfolio, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (39,441)
---------------
EXPENSES
Administration and Services Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193,462
Printing and Shareholder Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,277
Registration Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,758
Professional Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,191
Trustees Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,367
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,879
---------------
Total Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 212,934
Less Expenses Absorbed by Bankers Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (19,472)
---------------
Net Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193,462
---------------
NET INVESTMENT LOSS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (232,903)
---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net Realized Gain from Investment Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,673,917
Net Change in Unrealized Depreciation on Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (13,758,015)
---------------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9,084,098)
---------------
NET DECREASE IN NET ASSETS FROM OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (9,317,001)
---------------
---------------
</TABLE>
See Notes to Financial Statements on Page 8
6
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CAPITAL APPRECIATION FUND
STATEMENT OF CHANGES IN NET ASSETS
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<TABLE>
<CAPTION>
FOR THE FOR THE
SIX MONTHS ENDED YEAR ENDED
MARCH 31, 1997+ SEPTEMBER 30, 1996
---------------- ------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS
Net Investment Loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (232,903) $ (410,072)
Net Realized Gain from Investment Transactions . . . . . . . . . . . . . . . . . . . . . . 4,673,917 6,405,510
Net Change in Unrealized Appreciation (Depreciation) on Investments. . . . . . . . . . . . (13,758,015) 1,389,272
--------------- ---------------
Net Increase (Decrease) in Net Assets from Operations. . . . . . . . . . . . . . . . . . . . (9,317,001) 7,384,710
--------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS
Net Realized Gain from Investment Transactions . . . . . . . . . . . . . . . . . . . . . . (8,245,494) (6,765,953)
--------------- ---------------
CAPITAL TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Sales of Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,415,280 25,355,460
Dividend Reinvestments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,469,051 3,593,138
Cost of Shares Redeemed. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (14,422,283) (19,562,155)
--------------- ---------------
NET INCREASE (DECREASE) FROM CAPITAL TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST . . . . . (4,537,952) 9,386,443
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TOTAL INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . (22,100,447) 10,005,200
NET ASSETS
Beginning of Period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67,384,800 57,379,600
--------------- ---------------
End of Period (includes accumulated net investment loss of $(642,968) and $(410,072),
respectively) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 45,284,353 $ 67,384,800
--------------- ---------------
--------------- ---------------
</TABLE>
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FINANCIAL HIGHLIGHTS
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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 Capital Appreciation Fund.
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE FOR THE FOR THE PERIOD FOR THE MARCH 9, 1993
SIX MONTHS YEAR ENDED JANUARY 1, 1995 YEAR ENDED (COMMENCEMENT
ENDED SEPTEMBER 30, TO SEPTEMBER 30, DECEMBER 31, OF OPERATIONS) TO
MARCH 31, 1997+ 1996 1995** 1994 DECEMBER 31, 1993
--------------- ------------- ---------------- ------------ -----------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . $16.79 $16.83 $12.10 $11.72 $10.00
------ ------ ------ ------ ------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
Net Investment Loss. . . . . . . . . . . . . . (0.07) (0.10) (0.07) (0.04) (0.01)
Net Realized and Unrealized Gain (Loss) on
Investments. . . . . . . . . . . . . . . . . (2.32) 1.89 4.80 0.42 1.73
------ ------ ------ ------ ------
Total Income (Loss) from Investment Operations . (2.39) 1.79 4.73 0.38 1.72
------ ------ ------ ------ ------
DISTRIBUTIONS TO SHAREHOLDERS
Net Realized Gain from Investment Transactions (2.10) (1.83) -- -- --
------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . $12.30 $16.79 $16.83 $12.10 $11.72
------ ------ ------ ------ ------
------ ------ ------ ------ ------
TOTAL INVESTMENT RETURN. . . . . . . . . . . . . (15.73)% 12.35% 39.09% 3.24% 21.54%*
SUPPLEMENTAL DATA AND RATIOS:
Net Assets, End of Period (000s omitted) . . . $45,284 $67,385 $57,380 $42,737 $17,573
Ratios to Average Net Assets:
Net Investment Loss. . . . . . . . . . . . . (0.78)%* (0.66)% (0.65)%* (0.57)% (0.23)%*
Expenses, including Expenses of the Capital
Appreciation Portfolio . . . . . . . . . . 1.25%* 1.25% 1.25%* 1.25% 1.25%*
Decrease Reflected in Above Expense Ratio Due
to Absorption of Expenses by Bankers Trust 0.28%* 0.26% 0.32%* 0.54% 0.74%*
</TABLE>
- ---------------
+ Unaudited
* Annualized
** The Board of Trustees approved the change of the fiscal year end from
December 31 to September 30.
See Notes to Financial Statements on Page 8
7
<PAGE>
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CAPITAL APPRECIATION FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
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 Capital Appreciation Fund (the "Fund") is
one of the funds offered to investors by the Trust. The Fund commenced
operations and began offering shares of beneficial interest on March 9, 1993.
The Fund invests substantially all of its assets in the Capital Appreciation
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 March 31, 1997, the Fund's investment was
99.99% 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 Capital
Appreciation 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 applicable to regulated investment companies and distribute substantially
all of its taxable income to shareholders. Therefore, no federal income tax
provision is required.
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 six months ended March 31, 1997, this fee
aggregated $193,462.
The Trust entered into a Distribution Agreement with Edgewood Services, Inc.
("Edgewood"). Under the Distribution Agreement with the Trust, pursuant to
Rule 12b-1 of the 1940 Act, Edgewood 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 six months ended March 31,
1997, 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 six months ended March 31, 1997, expenses of the Fund
have been reduced by $19,472.
Certain trustees and officers of the Fund are also directors, officers and/or
employees of Edgewood. 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 March 31, 1997, there were an unlimited number of shares of beneficial
interest authorized. Transactions in shares of beneficial interest were as
follows:
<TABLE>
<CAPTION>
FOR THE FOR THE
SIX MONTHS ENDED YEAR ENDED
MARCH 31, 1997 (UNAUDITED) SEPTEMBER 30, 1996
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Sold 369,012 $ 5,415,280 1,597,362 $ 25,355,460
Reinvested 319,442 4,469,051 240,689 3,593,138
Redeemed (1,020,976) (14,422,283) (1,233,122) (19,562,155)
----------- ------------ ----------- ------------
Net Increase (Decrease) (332,522) $ (4,537,952) 604,929 $ 9,386,443
----------- ------------ ----------- ------------
----------- ------------ ----------- ------------
</TABLE>
8
<PAGE>
- --------------------------------------------------------------------------------
CAPITAL APPRECIATION PORTFOLIO
SCHEDULE OF PORTFOLIO INVESTMENTS MARCH 31, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
Shares Description Value
- ------ ----------- -----
COMMON STOCKS - 96.66%
AMERICA'S CHANGING LEISURE TIME - 3.06%
13,700 Harley-Davidson, Inc.. . . . . . . . . . . . . . . . $ 464,087
11,600 Lone Star Steakhouse & Saloon (a). . . . . . . . . . 265,350
9,800 Royal Caribbean Cruises, Ltd.. . . . . . . . . . . . 298,900
9,200 Starwood Lodging Trust . . . . . . . . . . . . . . . 358,800
------------
1,387,137
------------
AMERICA'S INDUSTRIAL RENAISSANCE - 6.50%
18,628 Agco Corp. . . . . . . . . . . . . . . . . . . . . . 514,598
10,500 American Standard Companies, Inc. (a). . . . . . . . 472,500
17,200 BE Aerospace, Inc. (a) . . . . . . . . . . . . . . . 421,400
16,000 Delta & Pine Land Co.. . . . . . . . . . . . . . . . 496,000
6,987 Raychem Corp.. . . . . . . . . . . . . . . . . . . . 575,554
15,552 Sunbeam Corporation, Inc.. . . . . . . . . . . . . . 466,560
------------
2,946,612
------------
CLIENT-SERVER COMPUTING - 5.63%
22,604 Cognos, Inc. (a) . . . . . . . . . . . . . . . . . . 587,704
10,914 Compuware Corp. (a). . . . . . . . . . . . . . . . . 684,853
13,334 Electronics for Imaging, Inc. (a). . . . . . . . . . 531,693
15,800 EMC Corp. (a). . . . . . . . . . . . . . . . . . . . 560,900
11,100 Legato Systems, Inc. (a) . . . . . . . . . . . . . . 185,925
------------
2,551,075
------------
ENVIRONMENTAL CRISIS - 4.39%
19,500 Culligan Water Technologies (a). . . . . . . . . . . 762,938
19,422 USA Waste Services, Inc. (a) . . . . . . . . . . . . 689,481
17,455 U.S. Filter Corp. (a). . . . . . . . . . . . . . . . 538,923
------------
1,991,342
------------
FLOURISHING IN THE MANAGED CARE
ENVIRONMENT - 1.75%
3,100 PacifiCare Health Systems, Inc.-Cl. B (a). . . . . . 267,375
19,363 PhyCor, Inc. (a) . . . . . . . . . . . . . . . . . . 527,642
------------
795,017
------------
INTERACTIVE MEDIA - 1.40%
21,233 Outdoor Systems, Inc. (a). . . . . . . . . . . . . . 634,336
------------
LIFE ON THE NET - 3.99%
8,139 America Online, Inc. (a) . . . . . . . . . . . . . . 344,890
24,700 FORE Systems (a) . . . . . . . . . . . . . . . . . . 370,500
26,143 Network General Corp. (a). . . . . . . . . . . . . . 562,075
18,385 Sterling Commerce, Inc. (a). . . . . . . . . . . . . 533,165
------------
1,810,630
------------
LIFE SCIENCES REVOLUTION - 11.07%
6,900 Agouron Pharmaceuticals, Inc. (a). . . . . . . . . . 487,313
15,800 BioChem Pharma, Inc. (a) . . . . . . . . . . . . . . 679,400
16,300 Centocor, Inc. (a) . . . . . . . . . . . . . . . . . 497,150
25,700 Cephalon, Inc. (a) . . . . . . . . . . . . . . . . . 539,700
11,900 Dura Pharmaceuticals, Inc. (a) . . . . . . . . . . . 425,425
16,882 Elan Corp., ADR (a). . . . . . . . . . . . . . . . . 576,098
22,600 Genzyme Corp. (a). . . . . . . . . . . . . . . . . . 508,500
24,400 Liposome Company, Inc. (a) . . . . . . . . . . . . . 497,150
6,300 Millipore Corp.. . . . . . . . . . . . . . . . . . . 266,962
37,000 Mylan Laboratories . . . . . . . . . . . . . . . . . 541,125
------------
5,018,823
------------
MANAGING THE INFORMATION AGE - 2.11%
9,500 Ciber, Inc. (a). . . . . . . . . . . . . . . . . . . 239,875
1,800 Gartner Group, Inc.-Cl. A (a). . . . . . . . . . . . 38,925
8,600 Keane, Inc. (a). . . . . . . . . . . . . . . . . . . $ 282,725
8,895 McAfee Associates, Inc. (a). . . . . . . . . . . . . 393,604
------------
955,129
------------
MOVE TO OUTSOURCING - 2.14%
2,176 Catalina Marketing Corp. (a) . . . . . . . . . . . . 88,400
7,300 Coca-Cola Enterprises, Inc.. . . . . . . . . . . . . 418,838
13,788 Danka Business Systems, ADR. . . . . . . . . . . . . 433,460
2,400 West TeleServices Corp. (a). . . . . . . . . . . . . 30,900
------------
971,598
------------
NEW CONSUMER - 4.41%
14,300 Footstar, Inc. (a) . . . . . . . . . . . . . . . . . 423,638
23,300 Fruit of the Loom, Inc.-Cl. A (a) . . . . . . . . . 966,950
4,242 Gucci Group NV . . . . . . . . . . . . . . . . . . . 305,954
8,172 Jones Apparel Group, Inc. (a). . . . . . . . . . . . 303,385
------------
1,999,927
------------
NEW HEALTHCARE PARADIGM - 11.97%
11,205 Cardinal Health, Inc.. . . . . . . . . . . . . . . . 609,272
12,200 DENTSPLY International, Inc. . . . . . . . . . . . . 610,000
4,500 Guidant Corp.. . . . . . . . . . . . . . . . . . . . 276,750
12,900 HBO & Co.. . . . . . . . . . . . . . . . . . . . . . 612,750
30,346 HEALTHSOUTH Corp. (a). . . . . . . . . . . . . . . . 580,367
9,900 Heartport, Inc. (a). . . . . . . . . . . . . . . . . 242,550
14,400 IDX Systems (a). . . . . . . . . . . . . . . . . . . 392,400
10,900 McKesson Corp. . . . . . . . . . . . . . . . . . . . 697,600
21,617 Omnicare, Inc. . . . . . . . . . . . . . . . . . . . 508,000
7,300 Rexall Sundown, Inc. (a) . . . . . . . . . . . . . . 187,062
28,600 Safeskin Corp. (a) . . . . . . . . . . . . . . . . . 518,37
6,250 U.S. Surgical Corp.. . . . . . . . . . . . . . . . . 190,625
------------
5,425,751
------------
OUR STRENGTHENING FINANCIAL STRUCTURE - 11.28%
15,400 Ace Ltd. . . . . . . . . . . . . . . . . . . . . . . 985,600
25,200 Amerin Corp. (a) . . . . . . . . . . . . . . . . . . 507,150
16,300 ContiFinancial Corp. (a) . . . . . . . . . . . . . . 505,300
14,100 Edwards (A.G.), Inc. . . . . . . . . . . . . . . . . 433,575
24,300 Everest Reinsurance Holdings, Inc. . . . . . . . . . 713,813
16,900 First Security Corp. . . . . . . . . . . . . . . . . 542,913
5,100 Mercury General Corp.. . . . . . . . . . . . . . . . 311,100
11,500 Provident Companies, Inc.. . . . . . . . . . . . . . 629,625
20,800 Western National Corp. . . . . . . . . . . . . . . . 486,200
------------
5,115,276
------------
RE-ENERGIZING AMERICA - 12.76%
33,700 Abacan Resource Corp. (a). . . . . . . . . . . . . . 265,387
7,600 AES Corp. (a). . . . . . . . . . . . . . . . . . . . 425,600
15,634 BJ Services Co. (a). . . . . . . . . . . . . . . . . 748,478
10,012 Cooper Cameron Corp. (a) . . . . . . . . . . . . . . 685,822
14,000 ENSCO International, Inc. (a). . . . . . . . . . . . 689,500
18,600 Falcon Drilling Company, Inc. (a). . . . . . . . . . 688,200
28,000 Global Industries Ltd. (a) . . . . . . . . . . . . . 598,500
32,633 Global Marine, Inc. (a). . . . . . . . . . . . . . . 701,610
15,500 Noble Drilling Corp. (a) . . . . . . . . . . . . . . 267,375
15,491 Tidewater, Inc.. . . . . . . . . . . . . . . . . . . 712,586
------------
5,783,058
------------
RETURN TO HOME OWNERSHIP - 1.20%
36,400 Furniture Brands International, Inc. (a) . . . . . . 546,000
------------
See Notes to Financial Statements on Page 13
9
<PAGE>
- --------------------------------------------------------------------------------
CAPITAL APPRECIATION PORTFOLIO
SCHEDULE OF PORTFOLIO INVESTMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
Shares Description Value
- ------ ----------- -----
STORES OF VALUE - 3.48%
25,216 Borders Group, Inc. (a). . . . . . . . . . . . . . . $ 475,952
17,610 Consolidated Stores Corp. (a). . . . . . . . . . . . 620,752
23,800 General Nutrition Companies, Inc. (a). . . . . . . . 481,950
------------
1,578,654
------------
TELECOMMUNICATIONS - 6.70%
30,100 Allen Group, Inc. (a). . . . . . . . . . . . . . . . 526,750
13,300 Groupe AB SA (a) . . . . . . . . . . . . . . . . . . 128,012
21,623 McLeod, Inc.-Cl. A (a) . . . . . . . . . . . . . . . 383,808
16,200 Newbridge Networks Corp. (a) . . . . . . . . . . . . 463,725
20,284 Omnipoint Corp. (a). . . . . . . . . . . . . . . . . 197,769
12,391 QUALCOMM, Inc. (a) . . . . . . . . . . . . . . . . . 698,543
8,500 Sawtek, Inc. (a) . . . . . . . . . . . . . . . . . . 244,375
17,201 Teleport Communications Group, Inc.. . . . . . . . . 395,623
------------
3,038,605
------------
THE UBIQUITOUS SEMICONDUCTOR - 2.82%
7,200 ASM Lithography Holding NV (a) . . . . . . . . . . . 540,000
7,300 KLA Instruments Corp. (a). . . . . . . . . . . . . . 266,450
6,800 Novellus Systems (a) . . . . . . . . . . . . . . . . 469,200
------------
1,275,650
------------
TOTAL COMMON STOCKS (COST $42,611,572) . . . . . . . . . . . . . $ 43,824,620
------------
PREFERRED STOCK CONVERTIBLE - 1.29%
RE-ENERGIZING AMERICA - 1.29%
12,000 AES Trust I-Ser. A (Cost $600,000) . . . . . . . . . $ 583,500
------------
Principal
Amount Description Value
- --------- ----------- -----
SHORT TERM INVESTMENTS - 0.92%
U.S. TREASURY BILLS - 0.92%
$125,000 5.12%, 4/24/97 . . . . . . . . . . . . . . . . . . . $ 124,600
295,000 5.01%, 5/29/97 . . . . . . . . . . . . . . . . . . . 292,543
------------
TOTAL SHORT TERM INVESTMENTS (Cost $417,147) . . . . . . . . . . $ 417,143
------------
TOTAL INVESTMENTS (Cost $43,628,719) . . . . . . . 88.87% $ 44,825,263
Other Assets Less Liabilities. . . . . . . . . . . 1.13% 511,474
------------ ------------
NET ASSETS. .. . . . . . . . . . . . . . . . . . . 100.00% $ 45,336,737
------------ ------------
------------ ------------
- ---------------
(a) Non-Income Producing Security
The following abbreviation is used in portfolio descriptions:
ADR -- American Depository Receipt
See Notes to Financial Statements on Page 13
10
<PAGE>
- --------------------------------------------------------------------------------
CAPITAL APPRECIATION PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES MARCH 31, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
ASSETS
Investments, at Value (Cost of $43,628,719) . . . . . . . . . $ 44,825,263
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,565
Receivable for Securities Sold. . . . . . . . . . . . . . . . 727,174
Dividends Receivable. . . . . . . . . . . . . . . . . . . . . 11,715
Prepaid Expenses and Other. . . . . . . . . . . . . . . . . . 208
------------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . 45,567,925
------------
LIABILITIES
Due to Bankers Trust. . . . . . . . . . . . . . . . . . . . . 14,649
Payable for Securities Purchased. . . . . . . . . . . . . . . 203,229
Accrued Expenses and Other. . . . . . . . . . . . . . . . . . 13,310
------------
Total Liabilities. . . . . . . . . . . . . . . . . . . . . . . . 231,188
------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 45,336,737
------------
------------
COMPOSITION OF NET ASSETS
Paid-in Capital . . . . . . . . . . . . . . . . . . . . . . . $ 44,140,193
Net Unrealized Appreciation on Investments. . . . . . . . . . 1,196,544
------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 45,336,737
------------
------------
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED MARCH 31, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . $ 44,833
Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . 95,368
------------
TOTAL INVESTMENT INCOME. . . . . . . . . . . . . . . . . . . . . 140,201
------------
EXPENSES
Advisory Fees . . . . . . . . . . . . . . . . . . . . . . . . 194,679
Administration and Services Fees. . . . . . . . . . . . . . . 29,951
Professional Fees . . . . . . . . . . . . . . . . . . . . . . 17,113
Trustees Fees . . . . . . . . . . . . . . . . . . . . . . . . 1,033
Total Expenses. . . . . . . . . . . . . . . . . . . . . . . . 242,776
Less Expenses Absorbed by Bankers Trust . . . . . . . . . . . (63,073)
------------
Net Expenses. . . . . . . . . . . . . . . . . . . . . . . . 179,703
------------
NET INVESTMENT LOSS. . . . . . . . . . . . . . . . . . . . . . . (39,502)
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net Realized Gain from Investment Transactions. . . . . . . . 4,705,907
Net Change in Unrealized Depreciation on Investments. . . . . (13,829,844)
------------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS. . . . . . . . . (9,123,937)
------------
NET DECREASE IN NET ASSETS FROM OPERATIONS . . . . . . . . . . . $ (9,163,439)
------------
------------
See Notes to Financial Statements on Page 13
11
<PAGE>
- --------------------------------------------------------------------------------
CAPITAL APPRECIATION PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FOR THE
SIX MONTHS ENDED YEAR ENDED
MARCH 31, 1997+ SEPTEMBER 30, 1996
------------------ ------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM:
Operations
Net Investment Loss. . . . . . . . . . . . . . . . . . $ (39,502) $ (25,530)
Net Realized Gain from Investment Transactions . . . . 4,705,907 18,986,988
Net Change in Unrealized Depreciation on Investments . (13,829,844) (17,719,598)
------------------ ------------------
Net Increase (Decrease) in Net Assets from Operations. . . (9,163,439) 1,241,860
------------------ ------------------
CAPITAL TRANSACTIONS
Proceeds from Capital Invested . . . . . . . . . . . . 9,942,581 110,885,692
Value of Capital Withdrawn . . . . . . . . . . . . . . (23,827,900) (193,629,946)
------------------ ------------------
Net Decrease in Net Assets from Capital Transactions . . . (13,885,319) (82,744,254)
------------------ ------------------
TOTAL DECREASE IN NET ASSETS . . . . . . . . . . . . . . . (23,048,758) (81,502,394)
NET ASSETS
Beginning of Period. . . . . . . . . . . . . . . . . . . . 68,385,495 149,887,889
------------------ ------------------
End of Period. . . . . . . . . . . . . . . . . . . . . . . $ 45,336,737 $ 68,385,495
------------------ ------------------
------------------ ------------------
</TABLE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Contained below are selected supplemental data and ratios to average net assets
for the periods indicated for the Capital Appreciation Portfolio.
<TABLE>
<CAPTION>
For the period
FOR THE FOR THE FOR THE PERIOD FOR THE MARCH 9, 1993
SIX MONTHS YEAR ENDED JANUARY 1, 1995 YEAR ENDED (COMMENCEMENT
ENDED SEPTEMBER 30, TO SEPTEMBER 30, DECEMBER 31, OF OPERATIONS) TO
MARCH 31, 1997+ 1996 1995++ 1994 DECEMBER 31, 1993
----------------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
SUPPLEMENTAL DATA AND RATIOS:
Net Assets, End of Period
(000s omitted) . . . . . . . . . $45,337 $68,385 $149,888 $73,634 $37,076
Ratios to Average Net Assets:
Net Investment Loss. . . . . . . (0.13)%* (0.01)% 0.01%* 0.08% 0.38%*
Expenses . . . . . . . . . . . . 0.60%* 0.60% 0.60%* 0.60% 0.60%*
Decrease Reflected in Above
Expense Ratio Due to Absorption
of Expenses by Bankers Trust . 0.21%* 0.17% 0.18%* 0.23% 0.41%*
Portfolio Turnover Rate. . . . . . 96% 271% 125% 157% 137%
Average Commission Per Share** . . $0.059 $0.055
</TABLE>
- -------------------
+ Unaudited
++ The Board of Trustees approved the change of the fiscal year end from
December 31 to September 30.
* 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 Page 13
12
<PAGE>
- --------------------------------------------------------------------------------
CAPITAL APPRECIATION PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 1--ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
A. ORGANIZATION
The Capital Appreciation 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 October 28,
1992, as an unincorporated trust under the laws of New York and commenced
operations on March 9, 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. However, in the
event of default or bankruptcy by the seller, realization and/or retention of
the collateral may be subject to legal proceedings.
E. 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 six months ended March 31, 1997, this fee
aggregated $29,951.
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 six
months ended March 31, 1997, this fee aggregated $194,679.
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 six months ended March
31, 1997, expenses of the Portfolio have been reduced by $63,073.
Certain trustees and officers of the Portfolio are also directors, officers
and/or employees of Edgewood. 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 six months ended March 31, 1997, Capital Appreciation Portfolio paid
brokerage commissions of $105,409.
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 six months ended March 31, 1997 were
$57,597,820 and $66,590,668, respectively.
For federal income tax purposes, the tax basis of investments held at March
31, 1997, was $43,698,018. The aggregate gross unrealized appreciation for
all investments was $4,688,761 and the aggregate gross unrealized
depreciation for all investments was $3,561,516.
13
<PAGE>
BT INVESTMENT FUNDS
CAPITAL APPRECIATION FUND
INVESTMENT ADVISER OF THE PORTFOLIO AND ADMINISTRATOR
BANKERS TRUST COMPANY
130 Liberty Street
New York, NY 10006
DISTRIBUTOR
EDGEWOOD SERVICES, INC.
Clearing Operations
P.O. Box 897
Pittsburgh, PA 15230-0897
CUSTODIAN AND TRANSFER AGENT
BANKERS TRUST COMPANY
130 Liberty Street
New York, NY 10006
INDEPENDENT ACCOUNTANTS
COOPERS & LYBRAND L.L.P
1100 Main Street, Suite 900
Kansas City, MO 64105
COUNSEL
WILLKIE FARR & GALLAGHER
153 East 53rd Street
New York, NY 10022
------------------------
For information on how to invest, shareholder account
information and current price and yield information,
please contact your relationship manager or the BT Mutual Fund
Service Center at (800) 730-1313.
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