<PAGE>
- BT INVESTMENT FUNDS -
--------------
SMALL CAP FUND
--------------
ANNUAL REPORT
--------------
SEPTEMBER-1997
<PAGE>
- --------------------------------------------------------------------------------
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 . . . . . . . . . . . . . . . . . . 14
2
<PAGE>
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SMALL CAP FUND
LETTER TO SHAREHOLDERS
- --------------------------------------------------------------------------------
We are pleased to present you with this annual report for the 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 17.90%* for the twelve
months ended September 30, 1997, as compared to 33.19% for the Russell 2000
Index**, 23.26% for the Russell 2000 Growth Index**, and 29.79% for the Lipper
Small Cap Growth Average+. Since its inception on October 21, 1993, the Fund
delivered a total return of 175.71% cumulatively, or 29.34% annualized, as of
September 30, 1997.
MARKET ACTIVITY
As indicated in our last report, the six months ended March 31, 1997 were
characterized by a prolonged correction in the small cap growth arena, as
investors' concerns regarding inflation, corporate earnings, the direction of
interest rates, and market valuation levels dominated. The Federal Reserve
Board finally raised the fed funds rate by 0.25% on March 25, 1997, and although
investors continued to focus on larger capitalization and more value-oriented
stocks the following few weeks, the stage was set for a more positive outlook
for small caps.
- --------------------------------------------------------------------------------
OBJECTIVE
Seeks to provide long-term capital growth by investing primarily in equity
securities of smaller companies. Current income is a secondary goal.++
- --------------------------------------------------------------------------------
For the period from May through September 1997, small cap stocks outperformed
both the midcap and large cap segments of the market, and within the small cap
sector, growth outperformed value. Small cap stocks benefited from several
factors. First, our research showed that earnings growth remained strong for
small cap companies throughout the period of small cap underperformance.
Second, valuations of small cap companies were at compelling levels in the
spring, and at their lowest levels in over four years when measured by the
relative price/earnings ratio of the Russell 2000 Index versus the S&P 500
Index**. Third, investor sentiment, which had been negative towards small cap
stocks for about seven months through April 1997, turned positive. Investors
breathed a sigh of relief at the belief that with inflation under control,
economic growth strong but not accelerating, and one interest rate increase
undertaken, 1997 would not be a repeat of 1994 when the Federal Reserve Board
raised interest rates numerous times. Other factors that should serve as
positive influences on the small cap market include the recently passed Taxpayer
Relief Act of 1997, which provides capital gains tax relief, and the strong
dollar, which affects smaller U.S. companies to a much lesser extent than it
does larger multinational corporations.
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INVESTMENT INSTRUMENTS
Generally common stocks of smaller U.S. corporations and, to a lesser extent,
foreign corporations.
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INVESTMENT REVIEW
While the Fund's relative performance was hampered by its investment style
during the first seven months of the fiscal year, it was, likewise, helped
significantly by a return to growth style investing in the remaining months of
the year. Relative sector positioning and effective stock picking added value
during the second half of the year as well. More specifically, the Fund
benefited from an overweight position in technology, which was one of the best
performing sectors for the year, as well as overweight positions in producer
durables and energy, sectors that also performed strongly. Stock picking also
benefited the Fund through the small cap growth recovery in the latter part of
the year, as various sectors, such as healthcare and consumer discretionary,
showed great volatility, and yet the stocks within the Fund's portfolio
performed well.
- --------------------------------------------------------------------------------
TEN LARGEST STOCK HOLDINGS
E*Trade Group, Inc. Friede Goldman International, Inc.
Safeskin Corp. Patterson Energy, Inc.
Halter Marine Group, Inc. P-Com, Inc.
Asyst Technologies Vivus, Inc.
Systems & Computer Technology Corp. Windmere-Durable Holdings, Inc.
- --------------------------------------------------------------------------------
Over the past year, we implemented a number of new investment themes. One theme
that has significantly contributed to the success of the Fund is called
"Energizing the Globe." This theme includes investments in beneficiaries of a
number of positive trends in the energy area, including: the growing use of such
technology as 3D seismic to find oil and gas more economically and in areas of
the world where it was uneconomical to explore previously; leaner and more cost
conscious companies than in the past; and a positive supply/demand situation
worldwide both for crude oil and natural gas. In addition, we recently added a
new theme named "Consolidating America." Investment opportunities in this area
are benefiting from being consolidators in fragmented industries, where smaller
companies are increasingly unable to compete with larger companies on the basis
of management, information systems, and capital.
MANAGER OUTLOOK
The fundamentals for growth stock investing remain positive, and, over the
longer term, it has been shown that investors will pay for reasonably priced
earnings growth. Earnings growth in the small cap growth area continues to be
strong, while valuations remain reasonable. Investor sentiment regarding these
stocks also continues to be favorable. We are encouraged that small cap growth
stocks have exhibited strong performance over the last five months. However, it
is important to take a long-term view when investing in the aggressive growth
segment of the market, as returns can be volatile in the shorter term.
- ---------
* Performance quoted represents past performance and is not indicative of
future 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.
** The Russell 2000 Index represents the U.S. small capitalization market. The
Russell 2000 Growth Index is comprised of securities with a greater than
average growth orientation. The S&P 500 Index emphasizes large
capitalization stocks. 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 Sevices, Inc. as falling
into the respective categories indicated. These figures do not reflect sales
charges.
++ In view of the long term capital growth objective of the Fund and the
smaller size of the companies in which it invests, the risks of investment
in the Fund may be greater than in the general equity markets.
3
<PAGE>
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SMALL CAP FUND
LETTER TO SHAREHOLDERS
- --------------------------------------------------------------------------------
DIVERSIFICATION OF PORTFOLIO INVESTMENTS
By Theme as of September 30, 1997
(PERCENTAGES ARE BASED ON MARKET VALUE)
[PIE CHART]
Move to Outsourcing 5%
Our Strengthening Financial Structure 5%
Managing the Information Age 5%
Productivity Enhancement 5%
New Healthcare Paradigm 6%
The Ubiquitous Semiconductor 6%
New Consumer 7%
Telecommunications 8%
Client Server Computing 5%
Consolidating America 4%
America's Changing Leisure Time 4%
Other 30%+
Energizing the Globe 10%
Over the long term, the performance of small cap stocks has outpaced the
returns of large company stocks, fixed income investments, and inflation++.
In addition, we have found that small cap companies have provided good
long-term investment opportunities due to their ability to provide products
and services in changing economic and corporate environments.
We remain disciplined in our investment process, and we continue to focus on
companies that offer compelling valuations relative to their earnings growth
rates as well as on companies that have strong, consistent revenue and earnings
growth. We continue to use extensive fundamental research, as well as our
thematic approach and database screening process, to identify attractive
investment opportunities in unrecognized growth companies and sectors. We also
continue to strictly adhere to our sell discipline to help mitigate risk and to
use the volatility of the marketplace to our investors' advantage by initiating
or adding to positions on weakness.
We will continue to monitor economic conditions and their effect on financial
markets, as we seek long-term capital growth.
We value your ongoing support of the Small Cap Fund and look forward to serving
your investment needs in the years ahead.
/s/ Mary P. Dugan
/s/ Timothy Woods
Mary P. Dugan and Timothy Woods
Portfolio Managers of the
SMALL CAP PORTFOLIO
September 30, 1997
- ----------
+ Includes cash and themes with weightings of less than 4%.
++ Source: -C-Stocks, Bonds, Bills, and Inflation 1996 Yearbook-TM-, Ibbotson
Associates, Chicago (annually updates work by Roger G. Ibbotson and Rex A.
Sinquefield). Used with permission. All rights reserved. Data from
1926-1995. Past performance is no guarantee of future results.
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON
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COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE SMALL CAP FUND AND
THE RUSSELL 2000 INDEX SINCE OCTOBER 31, 1993.
- --------------------------------------------------------------------------------
TOTAL RETURN FOR THE PERIOD
ENDED SEPTEMBER 30, 1997
One Year Since 10/21/93*
17.90% 29.34%**
- ----------
* The Fund's inception date.
** Annualized.
Investment return and principal value may fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
- --------------------------------------------------------------------------------
[GRAPH]
Small Cap Fund - $27,217 Russell 2000 Index - $18,602
------------------------ ----------------------------
Oct-93 10000 10000
Dec-93 10326 10002
Mar-94 10375 9735
Jun-94 9951 9354
Sep-94 11451 10004
Dec-94 12320 9819
Mar-95 14107 10272
Jun-95 15903 11236
Sep-95 18263 12345
Dec-95 19536 12613
Mar-96 21049 13256
Jun-96 23181 13919
Sep-96 23074 13967
Dec-96 20884 14693
Mar-97 17517 13933
Jun-97 20917 16192
Sep-97 27217 18602
Past performance is not indicative of future performance.
4
<PAGE>
<TABLE>
<CAPTION>
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SMALL CAP FUND
STATEMENT OF ASSETS AND LIABILITIES SEPTEMBER 30, 1997
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS
Investment in Small Cap Portfolio, at Value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $285,878,325
Receivable for Shares of Beneficial Interest Subscribed. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,638,687
Prepaid Expenses and Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,127
-----------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 288,523,139
-----------
LIABILITIES
Due to Bankers Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130,374
Payable for Shares of Beneficial Interest Redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,047,107
Accrued Expenses and Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,450
-----------
Total Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,200,931
-----------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $286,322,208
-----------
-----------
COMPOSITION OF NET ASSETS
Paid-in Capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $193,320,147
Accumulated Net Realized Gain from Investment Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . 10,427,817
Net Unrealized Appreciation on Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82,574,244
-----------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $286,322,208
-----------
-----------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE (net assets divided by shares outstanding). . . . . . . $ 23.68
-----------
-----------
SHARES OUTSTANDING ($0.001 par value per share, unlimited number of shares of beneficial interest authorized). . 12,089,943
-----------
-----------
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 1997
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
Loss Allocated from Small Cap Portfolio, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (478,543)
-----------
EXPENSES
Administration and Services Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,273,452
Printing and Shareholder Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,500
Registration Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,181
Professional Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,495
Trustees Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,750
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,711
-----------
Total Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,324,089
Less Expenses Absorbed by Bankers Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (50,637)
-----------
Net Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,273,452
-----------
NET INVESTMENT LOSS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,751,995)
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net Realized Gain from Investment Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,511,447
Net Change in Unrealized Appreciation on Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,305,688
-----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,817,135
NET INCREASE IN NET ASSETS FROM OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 40,065,140
-----------
-----------
</TABLE>
See Notes to Financial Statements on Page 7
5
<PAGE>
<TABLE>
<CAPTION>
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SMALL CAP FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------------------------------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------ ------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS
Net Investment Loss. . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1,751,995) $ (1,380,737)
Net Realized Gain from Investment Transactions . . . . . . . . . . . . . 21,511,447 4,946,585
Net Change in Unrealized Appreciation on Investments . . . . . . . . . . 20,305,688 38,472,178
------------------ ------------------
Net Increase in Net Assets from Operations . . . . . . . . . . . . . . . . 40,065,140 42,038,026
------------------ ------------------
DISTRIBUTIONS TO SHAREHOLDERS
Net Realized Gain from Investment Transactions . . . . . . . . . . . . . (13,993,488) (10,302,003)
------------------ ------------------
CAPITAL TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Sales of Shares. . . . . . . . . . . . . . . . . . . . . . 248,556,213 249,711,457
Dividend Reinvestments . . . . . . . . . . . . . . . . . . . . . . . . . 10,338,678 7,579,445
Cost of Shares Redeemed. . . . . . . . . . . . . . . . . . . . . . . . . (240,880,564) (169,725,477)
------------------ ------------------
NET INCREASE FROM CAPITAL TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST . 18,014,327 87,565,425
------------------ ------------------
TOTAL INCREASE IN NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . 44,085,979 119,301,448
NET ASSETS
Beginning of Year. . . . . . . . . . . . . . . . . . . . . . . . . . . . 242,236,229 122,934,781
------------------ ------------------
End of Year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 286,322,208 $ 242,236,229
------------------ ------------------
------------------ ------------------
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
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
FOR THE YEARS ENDED OCTOBER 21, 1993
SEPTEMBER 30, (COMMENCEMENT OF
--------------------------------- OPERATIONS) TO
1997 1996 1995 SEPTEMBER 30, 1994
------ ------ ------ ------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
NET ASSET VALUE, BEGINNING OF PERIOD. . . . . . . . . $21.66 $18.50 $11.60 $10.00
------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Loss . . . . . . . . . . . . . . . . (0.14) (0.12) (0.04) (0.03)
Net Realized and Unrealized Gain on Investments . . 3.58 4.65 6.94 1.63
------ ------ ------ ------
Total Income from Investment Operations . . . . . . . 3.44 4.53 6.90 1.60
------ ------ ------ ------
DISTRIBUTIONS TO SHAREHOLDERS
Net Realized Gain from Investment Transactions. . . (1.42) (1.37) -- --
------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD. . . . . . . . . . . . $23.68 $21.66 $18.50 $11.60
------ ------ ------ ------
TOTAL INVESTMENT RETURN . . . . . . . . . . . . . . . 17.90% 26.41% 59.48% 17.06%*
SUPPLEMENTAL DATA AND RATIOS:
Net Assets, End of Period (000s omitted). . . . . . $286,322 $242,236 $122,935 $21,332
Ratios to Average Net Assets:
Net Investment Loss . . . . . . . . . . . . . . . (0.89)% (0.70)% (0.46)% (0.58)%*
Expenses, Including Expenses of the Small Cap
Portfolio . . . . . . . . . . . . . . . . . . . 1.25% 1.25% 1.25% 1.25%*
Decrease Reflected in Above Expense Ratio Due to
Absorption of Expenses by Bankers Trust . . . . 0.03% 0.22% 0.34% 0.86%*
</TABLE>
- ----------
* Annualized
See Notes to Financial Statements on Page 7
6
<PAGE>
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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, 1997, the Fund's investment was approximately 100%
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
Portfolio. All of the net investment income and realized and 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 to distribute
substantially all of its taxable income to shareholders. 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, 1997, $1,493,436 was reclassified from accumulated net
realized gain to net realized depreciation and $1,751,995 was reclassified from
undistributed net investment loss 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. Actual results could
differ from those estimates.
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, 1997, this fee aggregated $1,273,452.
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 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 year ended September 30, 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 year ended September 30, 1997, expenses of the Fund have
been reduced by $50,637.
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 September 30, 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
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sold 13,234,894 $248,556,213 12,796,190 $249,711,457
Reinvested 571,830 10,338,678 439,133 7,579,445
Redeemed (12,902,495) (240,880,564) (8,695,218) (169,725,477)
---------- ------------ ---------- ------------
Net Increase 904,229 $ 18,014,327 4,540,105 $ 87,565,425
---------- ------------ ---------- ------------
---------- ------------ ---------- ------------
</TABLE>
7
<PAGE>
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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, 1997, and the related statement of operations for the year then ended, the
statement of changes in net assets for the each of the two years in the period
then ended and the financial highlights for the years ended September 30, 1997,
1996 and 1995 and 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, 1997 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, 1997, the results of
its operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended, 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
November 5, 1997
8
<PAGE>
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SMALL CAP PORTFOLIO
SCHEDULE OF PORTFOLIO INVESTMENTS SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
Shares Description Value
------ ----------- -----
COMMON STOCK - 90.72%
AMERICA'S CHANGING LEISURE TIME - 4.16%
44,800 800-JR CIGAR, Inc. (a) . . . . . . . . . . . . . $ 1,568,000
79,800 Broderbund Software, Inc. (a). . . . . . . . . . 2,713,200
43,000 CapStar Hotel Co. (a). . . . . . . . . . . . . . 1,443,187
41,500 Cinar Films, Inc. (a). . . . . . . . . . . . . . 1,582,188
57,025 Papa John's International, Inc. (a). . . . . . . 1,949,542
55,500 Signature Resorts, Inc. (a). . . . . . . . . . . 2,636,250
-----------
11,892,367
-----------
AMERICA'S EDUCATIONAL CRISIS - 1.23%
79,400 Advantage Learning Systems, Inc. (a) . . . . . . 2,004,850
57,000 Edutrek International, Inc. (a). . . . . . . . . 1,517,625
-----------
3,522,475
-----------
AMERICA'S INDUSTRIAL RENAISSANCE - 2.60%
53,600 BE Aerospace, Inc. (a) . . . . . . . . . . . . . 1,929,600
61,800 DT Industries, Inc.. . . . . . . . . . . . . . . 2,039,400
71,800 Halter Marine Group, Inc. (a). . . . . . . . . . 3,473,325
-----------
7,442,325
-----------
CLIENT-SERVER COMPUTING - 4.74%
65,400 Apex PC Solutions, Inc. (a). . . . . . . . . . . 2,477,025
34,300 Citrix Systems, Inc. (a) . . . . . . . . . . . . 1,726,791
30,900 HNC Software, Inc. (a) . . . . . . . . . . . . . 1,228,275
14,000 Network Solutions, Inc.. . . . . . . . . . . . . 304,500
41,600 Siebel Systems, Inc. (a) . . . . . . . . . . . . 1,770,600
76,600 Systems & Computer Technology Corp. (a). . . . . 3,451,787
148,700 Xionics Document Technologies, Inc. (a). . . . . 2,583,663
-----------
13,542,641
-----------
CONSOLIDATING AMERICA - 3.95%
75,500 Fine Host Corp. (a). . . . . . . . . . . . . . . 2,925,625
94,400 HA-LO Industries, Inc. (a) . . . . . . . . . . . 2,702,200
37,200 Ivex Packaging Corp. . . . . . . . . . . . . . . 595,200
74,300 JLK Direct Distribution, Inc.-Cl. A (a). . . . . 2,224,356
66,200 Morningstar Group, Inc. (a). . . . . . . . . . . 2,846,600
-----------
11,293,981
-----------
ENERGIZING THE GLOBE - 10.08%
21,300 Cliffs Drilling Co. (a). . . . . . . . . . . . . 1,483,012
57,500 Friede Goldman International, Inc. (a) . . . . . 3,450,000
87,300 Hanover Compressor Co. (a) . . . . . . . . . . . 2,138,850
81,100 Marine Drilling Cos., Inc (a). . . . . . . . . . 2,534,375
92,400 Newfield Exploration Co. (a). . . . . . . . . . 2,592,975
70,600 Oceaneering International, Inc. (a). . . . . . . 1,681,163
64,400 Patterson Energy, Inc. (a) . . . . . . . . . . . 3,372,950
65,100 Pride International, Inc. (a). . . . . . . . . . 2,213,400
78,700 Stone Energy Corp. (a) . . . . . . . . . . . . . 2,646,287
53,900 Tuboscope Vetco International Corp. (a). . . . . 1,691,112
50,100 UTI Energy Corp. . . . . . . . . . . . . . . . . 1,978,950
62,600 Varco International, Inc. (a). . . . . . . . . . 3,036,100
-----------
28,819,174
-----------
ENVIRONMENTAL CRISIS - 1.94%
112,400 Eastern Environmental Services, Inc. (a) . . . . 2,866,200
68,200 Newpark Resources, Inc. (a). . . . . . . . . . . 2,681,113
-----------
5,547,313
-----------
FLOURISHING IN THE MANAGED CARE
ENVIRONMENT - 1.78%
85,400 FPA Medical Management, Inc. (a) . . . . . . . . 2,935,625
48,700 Pediatrix Medical Group, Inc. (a). . . . . . . . 2,148,888
-----------
5,084,513
-----------
LIFE ON THE NET - 3.90%
59,000 Excite, Inc. (a) . . . . . . . . . . . . . . . . 1,679,656
107,600 E*TRADE Group, Inc. (a). . . . . . . . . . . . . 5,057,200
83,300 Harbinger Corp. (a). . . . . . . . . . . . . . . 3,030,038
42,800 ONSALE, Inc. (a) . . . . . . . . . . . . . . . . 1,380,300
-----------
11,147,194
-----------
LIFE SCIENCES REVOLUTION - 3.46%
48,100 Agouron Pharmaceuticals, Inc. (a). . . . . . . . 2,314,812
80,000 CYTYC Corp. (a). . . . . . . . . . . . . . . . . 2,010,000
60,300 Parexel International Corp. (a). . . . . . . . . 2,381,850
85,100 Vivus, Inc. (a). . . . . . . . . . . . . . . . . 3,191,250
-----------
9,897,912
-----------
MANAGING THE INFORMATION AGE - 5.21%
99,200 Adflex Solutions (a) . . . . . . . . . . . . . . 2,418,000
8,800 Box Hill Systems Corp. (a) . . . . . . . . . . . 154,000
73,600 Complete Business Solutions, Inc. (a). . . . . . 2,097,600
72,000 Computer Task Group, Inc.. . . . . . . . . . . . 3,019,500
62,400 JDA Software Group, Inc. (a) . . . . . . . . . . 2,277,600
56,200 Transaction Systems Architects, Inc.-Cl. A (a) . 2,283,125
60,350 Veritas Software Corp. (a) . . . . . . . . . . . 2,651,628
-----------
14,901,453
-----------
MOVE TO OUTSOURCING - 4.78%
75,800 Eagle USA Airfreight, Inc. (a) . . . . . . . . . 2,539,300
46,900 Hagler Bailly, Inc. (a). . . . . . . . . . . . . 1,190,088
54,000 Hall, Kinion & Associates, Inc. (a). . . . . . . 1,140,750
48,500 MAXIMUS, Inc. (a). . . . . . . . . . . . . . . . 1,403,469
31,000 Metzler Group, Inc. (a). . . . . . . . . . . . . 1,243,875
80,300 SIPEX Corp. (a). . . . . . . . . . . . . . . . . 2,549,525
67,200 StaffMark, Inc. (a). . . . . . . . . . . . . . . 2,562,000
64,500 Syntel, Inc. (a) . . . . . . . . . . . . . . . . 1,023,937
-----------
13,652,944
-----------
NEW CONSUMER - 7.01%
123,800 Avis Rent-a-Car, Inc. (a). . . . . . . . . . . . 2,955,725
72,700 Claire's Stores, Inc.. . . . . . . . . . . . . . 1,626,663
86,500 Gadzooks, Inc. (a) . . . . . . . . . . . . . . . 1,816,500
148,400 Helen of Troy Ltd. (a) . . . . . . . . . . . . . 2,930,900
66,200 Kellwood Co. . . . . . . . . . . . . . . . . . . 2,345,963
60,800 Nautica Enterprises, Inc. (a). . . . . . . . . . 1,710,000
28,700 St. John Knits, Inc. . . . . . . . . . . . . . . 1,289,706
133,800 Windmere-Durable Holdings, Inc.. . . . . . . . . 3,186,112
86,600 Wolverine WorldWide, Inc.. . . . . . . . . . . . 2,186,650
-----------
20,048,219
-----------
NEW HEALTHCARE PARADIGM - 6.12%
97,300 Columbia Laboratories, Inc. (a). . . . . . . . . 1,800,050
61,995 Concentra Managed Care, Inc. (a) . . . . . . . . 2,189,198
59,100 IDX Systems Corp. (a). . . . . . . . . . . . . . 2,042,644
50,600 Monarch Dental Corp. (a) . . . . . . . . . . . . 1,087,900
87,600 Ocular Sciences, Inc. (a). . . . . . . . . . . . 2,025,750
80,100 Safeskin Corp. (a) . . . . . . . . . . . . . . . 3,554,438
53,300 Total Renal Care Holdings (a). . . . . . . . . . 2,665,000
119,100 Warner Chilcott Laboratories, ADR (a). . . . . . 2,114,025
-----------
17,479,005
-----------
OUR STRENGTHENING FINANCIAL STRUCTURE - 5.09%
30,200 CMAC Investment Corp.. . . . . . . . . . . . . . 1,619,475
78,800 Frontier Insurance Group, Inc. . . . . . . . . . 2,994,400
51,333 Legg Mason, Inc. . . . . . . . . . . . . . . . . 2,707,833
45,000 Mutual Risk Management Ltd.. . . . . . . . . . . 2,286,563
See Notes to Financial Statements on Page 13
9
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SMALL CAP PORTFOLIO
SCHEDULE OF PORTFOLIO INVESTMENTS SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
Shares Description Value
------ ----------- -----
80,450 Raymond James Financial, Inc.. . . . . . . . . . $ 2,896,200
35,800 Vesta Insurance Group, Inc.. . . . . . . . . . . 2,040,600
-----------
14,545,071
-----------
PRODUCTIVITY ENHANCEMENT - 5.21%
78,000 Asyst Technologies (a) . . . . . . . . . . . . . 3,463,688
49,900 Brooks Automation, Inc. (a). . . . . . . . . . . 1,914,912
55,600 Burr-Brown Corp. (a) . . . . . . . . . . . . . . 1,855,650
54,200 Quickresponse Services, Inc. (a) . . . . . . . . 1,856,350
43,000 Saville Systems Plc (a). . . . . . . . . . . . . 3,020,750
66,900 Visio Corp. (a). . . . . . . . . . . . . . . . . 2,793,075
-----------
14,904,425
-----------
RETURN TO HOME OWNERSHIP - 0.82%
34,300 Ethan Allen Interiors, Inc.. . . . . . . . . . . 1,063,300
68,100 Furniture Brands International, Inc. (a) . . . . 1,285,388
-----------
2,348,688
-----------
REVALUATION OF REAL ESTATE - 0.16%
12,000 CCA Prison Realty Trust. . . . . . . . . . . . . 453,000
-----------
STORES OF VALUE - 3.25%
60,900 Brylane, Inc. (a). . . . . . . . . . . . . . . . 2,793,787
39,500 Knoll, Inc. (a). . . . . . . . . . . . . . . . . 1,323,250
41,100 Proffitt's, Inc. (a) . . . . . . . . . . . . . . 2,435,175
73,500 The Men's Wearhouse, Inc. (a). . . . . . . . . . 2,737,875
-----------
9,290,087
-----------
TELECOMMUNICATIONS - 8.10%
91,600 Allen Telecommunications, Inc. (a) . . . . . . . 2,610,600
75,000 Davox Corp. (a). . . . . . . . . . . . . . . . . 2,512,500
67,200 Digital Microwave Corp. (a). . . . . . . . . . . 3,007,200
145,900 DSP Communications, Inc. (a) . . . . . . . . . . 3,054,781
53,600 Level One Communications, Inc. (a) . . . . . . . 2,157,400
138,400 P-COM, Inc. (a). . . . . . . . . . . . . . . . . 3,312,950
55,500 REMEC, Inc. (a). . . . . . . . . . . . . . . . . 2,025,750
55,700 Sawtek, Inc. (a) . . . . . . . . . . . . . . . . 2,576,125
82,500 STAR Telecommunications, Inc. (a). . . . . . . . 1,897,500
-----------
23,154,806
-----------
THE GREYING OF AMERICA - 0.80%
40,100 Sofamor/Danek Group, Inc. (a). . . . . . . . . . 2,290,713
-----------
THE UBIQUITOUS SEMICONDUCTOR - 6.33%
48,900 ANADIGICS, Inc. (a). . . . . . . . . . . . . . . 2,411,381
34,100 Lattice Semiconductor Corp. (a). . . . . . . . . 2,220,762
44,100 Photronics, Inc. (a) . . . . . . . . . . . . . . 2,670,806
52,500 PRI Automation, Inc. (a) . . . . . . . . . . . . 3,071,250
61,200 Triquint Semiconductor, Inc. (a) . . . . . . . . 2,229,975
33,600 Uniphase Corp. (a) . . . . . . . . . . . . . . . 2,671,200
80,900 VLSI Technology, Inc. (a). . . . . . . . . . . . 2,806,219
-----------
18,081,593
-----------
TOTAL COMMON STOCK (Cost $178,555,638) . . . . . . . . . . . . 259,339,899
-----------
SHORT TERM INSTRUMENT - 8.96%
MUTUAL FUNDS - 8.96%
25,623,353 BT Institutional Cash Management Fund
(Cost $25,623,353). . . . . . . . . . . . . . . $ 25,623,353
-----------
TOTAL INVESTMENTS (Cost $204,178,991). . . . . 99.68% 284,963,252
Other Assets in Excess of Liabilities. . . . . 0.32% 915,097
------ -----------
NET ASSETS . . . . . . . . . . . . . . . . . . 100.00% $285,878,349
------ -----------
------ -----------
- ----------
(a) Non-Income Producing Security
See Notes to Financial Statements on Page 13
10
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SMALL CAP PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
ASSETS
Investments, at Value (Cost of $204,178,991) . . . . . . . . $ 284,963,252
Receivable for Securities Sold . . . . . . . . . . . . . . . 4,987,014
Dividends and Interest Receivable. . . . . . . . . . . . . . 108,110
Prepaid Expenses . . . . . . . . . . . . . . . . . . . . . . 77
-----------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . 290,058,453
-----------
LIABILITIES
Due to Bankers Trust . . . . . . . . . . . . . . . . . . . . 120,028
Payable for Securities Purchased . . . . . . . . . . . . . . 4,042,812
Accrued Expenses and Other . . . . . . . . . . . . . . . . . 17,264
-----------
Total Liabilities. . . . . . . . . . . . . . . . . . . . . . . 4,180,104
-----------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . $ 285,878,349
-----------
-----------
COMPOSITION OF NET ASSETS
Paid-in Capital. . . . . . . . . . . . . . . . . . . . . . . $ 205,094,088
Net Unrealized Appreciation on Investments . . . . . . . . . 80,784,261
-----------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . $ 285,878,349
-----------
-----------
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . $ 122,443
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . 577,482
----------
TOTAL INVESTMENT INCOME. . . . . . . . . . . . . . . . . . . . 699,925
----------
EXPENSES
Advisory Fees. . . . . . . . . . . . . . . . . . . . . . . . 1,278,294
Administration and Services Fees . . . . . . . . . . . . . . 196,661
Professional Fees. . . . . . . . . . . . . . . . . . . . . . 25,600
Trustees Fees. . . . . . . . . . . . . . . . . . . . . . . . 2,100
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . 3,072
----------
Total Expenses . . . . . . . . . . . . . . . . . . . . . . . 1,505,727
Less Expenses Absorbed by Bankers Trust. . . . . . . . . . . (325,723)
----------
Net Expenses . . . . . . . . . . . . . . . . . . . . . . . 1,180,004
----------
NET INVESTMENT LOSS. . . . . . . . . . . . . . . . . . . . . . (480,079)
----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net Realized Gain from Investment Transactions . . . . . . . 21,635,104
Net Change in Unrealized Appreciation on Investments . . . . 19,884,098
----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS. . . . . . . . 41,519,202
----------
NET INCREASE IN NET ASSETS FROM OPERATIONS . . . . . . . . . . $ 41,039,123
----------
----------
See Notes to Financial Statements on Page 13
11
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<TABLE>
<CAPTION>
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SMALL CAP PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- ---------------------------------------------------------------------------------------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------ ------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS
Net Investment Loss. . . . . . . . . . . . . . . . . . . . . . $ (480,079) $ (95,874)
Net Realized Gain from Investment Transactions . . . . . . . . 21,635,104 4,944,264
Net Change in Unrealized Appreciation on Investments . . . . . 19,884,098 38,597,216
----------------- -----------------
Net Increase in Net Assets from Operations . . . . . . . . . . . 41,039,123 43,445,606
----------------- -----------------
CAPITAL TRANSACTIONS
Proceeds from Capital Invested . . . . . . . . . . . . . . . . 256,648,577 259,905,685
Value of Capital Withdrawn . . . . . . . . . . . . . . . . . . (257,424,442) (181,564,152)
----------------- -----------------
Net Increase (Decrease) in Net Assets from Capital Transactions. (775,865) 78,341,533
----------------- -----------------
TOTAL INCREASE IN NET ASSETS . . . . . . . . . . . . . . . . . . 40,263,258 121,787,139
NET ASSETS
Beginning of Year. . . . . . . . . . . . . . . . . . . . . . . . 245,615,091 123,827,952
----------------- -----------------
End of Year. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 285,878,349 $ 245,615,091
----------------- -----------------
----------------- -----------------
<CAPTION>
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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
FOR THE YEARS ENDED OCTOBER 21, 1993
SEPTEMBER 30, (COMMENCEMENT
------------------------------ OF OPERATIONS) TO
1997 1996 1995 SEPTEMBER 30, 1994
------ ------ ------ ------------------
<S> <C> <C> <C> <C>
SUPPLEMENTAL DATA AND RATIOS:
Net Assets, End of Period (000s omitted) . . . . . . $285,878 $245,615 $123,828 $21,328
Ratios to Average Net Assets:
Net Investment Income (Loss) . . . . . . . . . . . (0.24)% (0.05)% 0.19% 0.07%*
Expenses . . . . . . . . . . . . . . . . . . . . . 0.60% 0.60% 0.60% 0.60%*
Decrease Reflected in Above Expense Ratio Due to
Absorption of Expenses by Bankers Trust. . . . . 0.17% 0.17% 0.19% 0.38%*
Portfolio Turnover Rate. . . . . . . . . . . . . . 188% 159% 161% 154%
Average Commission Per Share** . . . . . . . . . . $0.0568 $0.0478
</TABLE>
- ----------
* Annualized
** For fiscal years beginning on or after September 1, 1995, the Portfolio 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
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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 by 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
and 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. Actual results could
differ from those estimates.
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, 1997, this fee aggregated $196,661.
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, 1997,
this fee aggregated $1,278,294.
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,
1997, expenses of the Portfolio have been reduced by $325,723.
Certain trustees and officers of the Portfolio are also directors, officers
and/or employees of Edgewood Services, Inc. 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, 1997, the Portfolio paid brokerage commissions
of $344,478.
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, 1997 were
$356,915,555 and $375,205,835, respectively.
For federal income tax purposes, the tax basis of investments held at September
30, 1997 was $204,768,569. The aggregate gross unrealized appreciation for all
investments was $80,459,053 and the aggregate gross unrealized depreciation for
all investments was $264,370.
13
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SMALL CAP PORTFOLIO
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Trustees and Holders of Beneficial Interest of BT Investment Portfolios:
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, 1997, 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 the years ended September 30, 1997, 1996 and 1995 and
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, 1997 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 Portfolio of BT Investment Portfolios as of September 30, 1997, the
results of its operations for the year then ended, the changes in its net assets
for each of the two years in the period then ended, 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
November 5, 1997
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BT INVESTMENT FUNDS
SMALL CAP 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
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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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STA498200 (11/97)
