<PAGE>
- BT INVESTMENT FUNDS -
INTERNATIONAL EQUITY FUND
ANNUAL REPORT
----------------
SEPTEMBER - 1997
<PAGE>
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INTERNATIONAL EQUITY FUND
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
LETTER TO SHAREHOLDERS. . . . . . . . . . . . . . . . . . . . . . 3
INTERNATIONAL EQUITY FUND
Statement of Assets and Liabilities. . . . . . . . . . . . . 7
Statement of Operations. . . . . . . . . . . . . . . . . . . 7
Statement of Changes in Net Assets . . . . . . . . . . . . . 8
Financial Highlights . . . . . . . . . . . . . . . . . . . . 9
Notes to Financial Statements. . . . . . . . . . . . . . . . 10
Report of Independent Accountants. . . . . . . . . . . . . . 11
INTERNATIONAL EQUITY PORTFOLIO
Schedule of Portfolio Investments. . . . . . . . . . . . . . 12
Statement of Assets and Liabilities. . . . . . . . . . . . . 15
Statement of Operations. . . . . . . . . . . . . . . . . . . 15
Statement of Changes in Net Assets . . . . . . . . . . . . . 16
Financial Highlights . . . . . . . . . . . . . . . . . . . . 16
Notes to Financial Statements. . . . . . . . . . . . . . . . 17
Report of Independent Accountants. . . . . . . . . . . . . . 19
2
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INTERNATIONAL EQUITY FUND
LETTER TO SHAREHOLDERS
- --------------------------------------------------------------------------------
We are pleased to present you with this annual report for the International
Equity 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 International Equity Fund (the "Fund") had a total return of 34.76%* for the
twelve month period ended September 30, 1997, as compared to 12.18% for the
Morgan Stanley Capital International ("MSCI") EAFE Index** and 18.59% for the
Lipper International Equity Funds Average+. Since its inception on August 4,
1992, the Fund delivered a total return of 146.84% cumulatively, or 19.16%
annualized, as of September 30, 1997.
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OBJECTIVE
Seeks long term capital appreciation from investments in foreign equity
securities or other securities with equity characteristics.++
- --------------------------------------------------------------------------------
It is also well worth noting that the International Equity Fund recently
celebrated its fifth anniversary and has developed an impressive track record of
performance. For the five years ended September 30, 1997, the Fund had an
annualized total return of 20.27%*, as compared to 12.33% for the Morgan Stanley
Capital International ("MSCI") EAFE Index** and 13.80% for the Lipper
International Equity Funds Average+.
MARKET ACTIVITY
Most of the world's developed markets reached all-time highs during the last
twelve months amidst a backdrop of sustainable economic growth and historically
low inflation. With U.S. Federal Reserve Board policy makers on hold for the
time being and renewed confidence that European economic and monetary
convergence will occur, a supportive environment for both bond and stock markets
remains in place.
However, volatility has begun to rise during the past several months, and the
tendency for individual markets to overshoot in both directions remains a
concern. Many European and North American markets experienced double-digit
returns in July only to have these gains erased as August's summer doldrums set
in. The upward pattern evidenced earlier in the year resumed in September, once
normal liquidity returned and the impact of Southeast Asian currency and equity
market turmoil was better assessed.
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INVESTMENT INSTRUMENTS
Equity securities of foreign issuers, consisting of common stock and other
securities with equity characteristics; the investments are diversified among
several regions.
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EUROPE
Although the U.S. market has drawn attention for its record-setting pace during
the last twelve months, gaining 40.44%, many European markets have outperformed
the S&P 500 Index** even in dollar terms in spite of the strength in the
greenback. These include Denmark, Finland, the Netherlands, Norway, Portugal,
Spain and Sweden. While fewer European bourses were able to beat the surging
U.S. market in the six months ended September 30, 1997, the several that did
were concentrated in the periphery: Finland, Italy and Spain. Europe as a whole
delivered a more than respectable 22.36% local market return for the half year
period (+18.15% in U.S. dollar terms). Although the strong dollar lessened the
gain to U.S. investors, it underscored the competitive advantage that
continental European industrials enjoy relative to the U.S. and the United
Kingdom.
The growing preference for equities by Europeans, spurred by falling risk-free
rates and the shrinking role governments are expected to play in providing
retirement benefits, have pushed those markets higher. Attractive valuations
relative to the S&P 500 Index have also brought steady flows from U.S. investors
seeking diversification after a prolonged period of strong performance at home.
ASIA
The Japanese stock market continued its annual pattern of offering great promise
and profound disappointment. The Nikkei, after falling below 17,500 during
first quarter 1997, skyrocketed to a year high 20,680 by the end of June, as
unexpectedly strong fiscal year 1996 earnings buoyed the market. Unfortunately,
the negative effects of the April 1 consumption tax hike compounded the already
weakening economic environment, leading to a steep summer sell-off. With most
major equity markets performing strongly and setting new highs this year, the
world's second largest equity market fell 15.69% during the past twelve months
in dollar terms.
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TEN LARGEST STOCK HOLDINGS
- --------------------------------------------------------------------
Credito Italiano CRH Plc.
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Newcourt Credit Group Telecom Italia SPA
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Philips Electronics UPM - Kymmene OY
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British Aerospace Nokia Corp. ADR
- --------------------------------------------------------------------
Fomento de Construccione Total S.A.
- --------------------------------------------------------------------
Several markets elsewhere in Asia over the past year saw precipitous falls, led
by Thailand, the Philippines and Malaysia, down in dollar terms by 63.68%,
52.06% and 44.68%, respectively. Valuations plummeted to new lows when the
region's currency crisis created a downward spiral in economic fundamentals and
investor sentiment. Thailand was the catalyst that sent the region into a
tailspin. Its own banking and property crises, which resulted from years of
over-investment, coupled with deteriorating trade balances, culminated in the
flotation of the Thai currency and acceptance of a $17.2 billion International
Monetary Fund-led bailout package. Unlike the Mexican peso debacle where the
currency damage was fairly contained, the depreciation of the Thai baht set off
a wildfire in Southeast Asia, where the traditional currency linkage to the
dollar was broken
- -------------------------------------
* Performance quoted represents past performance and is not indicative of
future results. 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 MSCI EAFE Index includes 1,098 companies representing the stock markets
of Europe, Australia, New Zealand and the Far East. 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 Services, Inc. as
falling into the respective categories indicated. These figures do not
reflect sales charges.
++ Foreign investing involves special risks, including currency risk,
increased volatility of foreign securities, and differences in auditing and
other financial standards.
3
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INTERNATIONAL EQUITY FUND
LETTER TO SHAREHOLDERS (CONTINUED)
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throughout the region. Policy responses by shell-shocked governments have been
mainly disappointing so far.
The fallout from the recent turmoil has exposed Asia's vulnerabilities, which
include the fact that its monetary policy was held hostage by the dollar-linked
currency system, its over-dependence on foreign borrowing, huge over-capacity in
some sectors of the economy, lax supervision in the financial system, and
declining competitiveness. The region as a whole will have to grapple with a
new era of currency volatility, higher interest rates, and higher risk premiums.
This means lower regional economic growth, more corporate earnings downgrades,
and reduced foreign capital inflows.
OTHER MARKETS
Canada continued its strong performance-up 33.65% in US dollars over the last
twelve months-reflecting its growing, low inflation economy. Although the Bank
of Canada has indicated that further interest rate moves may be necessary to
contain inflationary pressure, fundamentals remain quite positive.
Latin American markets, though volatile during the summer in sympathy with
weakness in Asia, registered a strong 51.47% dollar return for the year ending
September 30. Brazil was particularly affected because of its deteriorating
current account balances and overvalued currency. It dropped nearly 20% in
August before recovering by over 11% in September. While Mexico was not immune
to the spillover effects of devaluation fears, the overwhelming amount of
positive economic and corporate news ultimately prevailed. Argentina has been
held back by political uncertainty regarding upcoming lower house elections as
well as by concern over the growing trade deficit resulting from its strong
economic recovery.
INVESTMENT REVIEW
We continued to extend the Fund's overweight position in Europe, favoring the
continent and its peripheral markets while maintaining our underweighting of the
United Kingdom. We temporarily increased our exposure to Japan through call
options on the Nikkei and on a basket of Japanese city banks but have returned
to our significantly underweight position. We lightened our presence in Asia
ex-Japan due to our view that the equity and currency market crises there may be
long lasting. Exposure was added in Latin American markets to capture reviving
consumer demand. Our cash position ended the fiscal year at 6.23%.
Our European holdings reflect our continued view that restructuring,
consolidation and deregulation would fuel corporate earnings growth. Progress
towards economic and monetary union (EMU) is likely to create new investment
opportunities as European firms position themselves to compete in a larger and
broader playing field. We increased our presence in two of Europe's most
attractively valued markets, Italy and Finland, while reducing Spain because it
appears to be fairly valued. We moved aggressively in Portugal, which will soon
be added to the EAFE Index, taking our weighting from nil to 4.52% during the
past year. We also found excellent opportunities in Sweden and Switzerland,
raising our weightings in those markets.
The absence of Japanese bank stocks, which make up one of the largest components
of the EAFE Index, has led to the appearance that the Fund has underweighted
financial services companies. In fact, great values and extraordinary
opportunities have led to the Fund adding considerable exposure to this sector
elsewhere in the world, in particular in the European arena where, more than in
any other sector, consolidation and competition should flourish amidst the open
borders provided by European Monetary Union (EMU). We brought several new
holdings to this sector into the portfolio from two non-EAFE markets: Portugal
and Canada. We added Banco Comercial Portugues SA and BPI-SGPS SA (formerly
Banco Portugues de Investimento), based on compelling valuations and excellent
growth prospects. We also added the fast-growing Canadian financial services
company, Newcourt Credit Group, Inc.
The Fund reduced exposure to consumer-related stocks during the period with the
view that Japan's weak economy and the recent plunge in Asian currencies would
diminish demand in the formerly robust Asian consumer markets. We sold Japanese
retailer Jusco, Hong Kong apparel firm Giordano International Limited, French
luxury goods company Christian Dior SA, and in Italy, Gucci Group and Safilo
Spa.
We continue to find excellent opportunities in the energy sector, which provides
exposure to renewed demand in Europe and elsewhere. Many of the Fund's
investments trade at low multiples of net asset value or offer premium yields.
Integrated multinationals, such as British Petroleum Company plc and Total SA,
and niche exploration and production companies, such as Soco International plc
and Gulf Indonesia Resources Ltd., were added to the portfolio.
Healthcare, while attractive long term, remains underweight in the portfolio as
a reflection of our preference for specific names rather than a broad holding in
the sector. We added Glaxo Wellcome plc, a world leader in anti-ulcer
treatments; international drug maker Pharmacia & Upjohn, Inc.; and Roche Holding
AG, which manufactures a broad range of pharmaceuticals and health products.
We have maintained a slight overweight in capital equipment stocks and consumer
durables, emphasizing companies that have undergone significant restructuring
and those that benefit from improving economic growth. Most notable was the
addition of Schneider SA, the French electrical machinery and engineering firm,
which enjoys a commanding presence in Europe.
We continue to hold a number of positions in technology, one of the world's most
promising growth areas. While technology perhaps has been the most volatile
sector for many investors, the Fund's mix of diversified consumer-related
stocks, such as Sony Corporation, Philips Electronics NV and Nintendo Company,
Ltd., and corporate/industrial holdings, such as Dassault Systems SA,
SGS-Thomson Microelectronics NV and SAP AG, has generated superior returns with
relatively low overall volatility.
We have avoided broad exposure to telecommunications stocks, emphasizing
specific high-growth plays, such as Telebras in Brazil, Portugal Telecom,
Telefonica de Espana and Telecom Italia. Selling United Utilities plc of the
UK, Germany's Berliner Kraft und Licht, and Spain's Iberdrola and Gas Natural
because they reached fair value has led to an underweighting in utilities.
Although we saw few values in the transportation sector during the period, this
is likely to change, as growing economies require such services.
4
<PAGE>
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INTERNATIONAL EQUITY FUND
LETTER TO SHAREHOLDERS (CONTINUED)
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DIVERSIFICATION OF PORTFOLIO INVESTMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BY SECTOR AS OF SEPTEMBER 30, 1997
(PERCENTAGES ARE BASED ON MARKET VALUE)
[Graph]
Switzerland 5%
Germany 7%
Italy 7%
United Kingdom 7%
Japan 7%
Short Term Instruments 11%
Hong Kong 5%
Netherlands 5%
Portugal 5%
Finland 4%
Sweden 4%
Canada 4%
Spain 4%
Other 11%+
France 14%
+ Includes countries with weightings of less than 4%.
MANAGER OUTLOOK
After the history-making prolonged expansion of the U.S. equity market,
investors are seeking ways to find more attractive values while diversifying
risk. At the same time in many countries, fixed income instruments have begun
to lose their luster, as yields fall and growth in retirement savings becomes a
necessity. The combined effect has brought new liquidity to many foreign stock
markets that are undervalued relative to the U.S.
In our opinion, continental European markets continue to offer the best
prospects, especially in France and in the periphery. European unification
should reward companies that have taken the crucial steps required to be
successful in the increasingly competitive marketplace. The United Kingdom
offers the greatest depth of investment opportunities, second only to the U.S.
Unfortunately, valuations have risen considerably and the prospect of higher
interest rates, renewed inflation and the negative impact of a strong currency
could hamper performance there.
Japan has become a trading market for most of the nineties, as it attempts to
deflate the excesses of the bubble years. Until serious measures are undertaken
to restructure its inefficient and closed economy, to deregulate key industries,
and to improve financial reporting transparency, the Japanese equity market is
likely to continue to be range bound. Even within such a restrictive
environment, many firms that are trading at U.S.-type multiples have been able
to capture investor interest by restructuring to compete globally, and
heightened sensitivity to shareholder value. These are expected to continue to
form the foundation for our Japanese exposure, while options may be used to
capture the broad swings of the market.
In Pacific ex-Japan markets, we believe volatility will remain high for some
time to come. Thus, despite the market retrenchment, we are hesitant to
increase our exposure. In such a destabilizing environment, it is probable that
valuations for the equity and currency markets will overshoot on the downside.
Southeast Asian economies will need to undergo painful adjustments, which are
likely to be prolonged due to their structural nature. Also, it is uncertain
whether the political will exists to undertake such a process.
The fundamentals for Hong Kong/China are more favorable, as both economies are
experiencing a cyclical upturn. Large foreign reserves, sound current account
balances, and moderate inflation are benefiting both markets. However, negative
regional sentiment may overshadow the fundamentals. Long term, Hong Kong will
benefit from its exposure to China's emerging economy, the more so because its
own has achieved a position of maturity. The recently concluded 15th Party
Congress confirms that China is dedicated to the reform path through the
privatization of state-owned enterprises. In addition to maintaining a presence
in Hong Kong/China, we will look to increase our weighting in India as economic
reforms and accommodating monetary conditions highlight its potential as the
next China.
Latin American markets are beginning to appear fairly valued. Liquidity
conditions will not be as favorable as have been seen so far in 1997, but the
region should be supported as a newfound safe haven among emerging markets.
Market sentiment for Mexico should remain high as the consumer sector continues
to show strong growth. While the perception is that Brazil's risk has
increased, the correction has been overdone and market sentiment should improve
as privatization efforts continue. Argentina may continue to experience
short-term nervousness over elections and its strong correlation to the U.S.
market, although we believe there is value to be found in the banking sector.
We will, of course, continue to monitor economic conditions and political
initiatives and their effect on financial markets as we seek long-term capital
appreciation.
We value your ongoing support of the BT Investment Funds and look forward to
continuing to serve your investment needs in the years ahead.
/s/ Michael Levy
/s/ Robert Reiner
/s/ Julie Wang
Michael Levy, Robert Reiner and Julie Wang
Portfolio Managers of the
International Equity Portfolio
September 30, 1997
5
<PAGE>
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INTERNATIONAL EQUITY FUND
PERFORMANCE COMPARISON
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE INTERNATIONAL
EQUITY FUND AND THE MORGAN STANLEY CAPITAL INTERNATIONAL EAFE INDEX SINCE AUGUST
31, 1992.
- --------------------------------------------------------------------------------
TOTAL RETURN FOR THE PERIOD
ENDED SEPTEMBER 30, 1997
One Year Since 8/4/92*
34.76% 19.16%**
* 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.
- --------------------------------------------------------------------------------
International Equity Fund - $24,318 MSCI EAFE Index - $18,634
Aug-92 10000 10000
Sep-92 9665 9803
Dec-92 9606 9424
Mar-93 10424 10554
Jun-93 11084 11615
Sep-93 11944 12386
Dec-93 13196 12493
Mar-94 13717 12930
Jun-94 13266 13590
Sep-94 13977 13603
Dec-94 13738 13465
Mar-95 14046 13715
Jun-95 14961 13815
Sep-95 15911 14391
Dec-95 15950 14974
Mar-96 16862 15406
Jun-96 17881 15650
Sep-96 18057 15630
Dec-96 19349 15879
Mar-97 20108 15630
Jun-97 23184 18766
Sep-97 24318 18634
Past performance is not indicative of future performance.
6
<PAGE>
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INTERNATIONAL EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Investment in International Equity Portfolio, at Value . . . . . . . . . . . . . . . . . . . $ 526,674,765
Receivable for Shares of Beneficial Interest Subscribed. . . . . . . . . . . . . . . . . . . 2,852,558
Prepaid Expenses and Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,218
--------------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 529,545,541
--------------
LIABILITIES
Due to Bankers Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 640,845
Payable for Shares of Beneficial Interest Redeemed . . . . . . . . . . . . . . . . . . . . . 3,379,109
Accrued Expenses and Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,382
--------------
Total Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,025,336
--------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 525,520,205
--------------
--------------
COMPOSITION OF NET ASSETS
Paid-in Capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 409,121,565
Undistributed Net Investment Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,081,749
Undistributed Net Realized Gain from Investment, Option and Forward
Foreign Currency Transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,821,255
Net Unrealized Appreciation on Investments, Options, Foreign Currencies
and Forward Foreign Currency Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . 103,495,636
--------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 525,520,205
--------------
--------------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE (net assets divided by
shares outstanding). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 22.13
--------------
--------------
SHARES OUTSTANDING ($0.001 par value per share, unlimited number of shares of
beneficial interest authorized). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,751,549
--------------
--------------
- -------------------------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 1997
- -------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Income Allocated from International Equity Portfolio, net. . . . . . . . . . . . . . . . . . $ 4,223,555
--------------
EXPENSES
Administration and Services Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,601,064
Printing and Shareholder Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,500
Registration Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,828
Professional Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,945
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,164
Trustees Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,700
--------------
Total Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,650,201
Less Expenses Absorbed by Bankers Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . (49,137)
--------------
Net Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,601,064
--------------
NET INVESTMENT INCOME. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,622,491
--------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS, FOREIGN CURRENCIES AND FORWARD FOREIGN
CURRENCY CONTRACTS
Net Realized Gain (Loss) from:
Investment Transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,152,812
Option Transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (677,680)
Foreign Currency Transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,020,433
Net Change in Unrealized Appreciation on Investments, Foreign Currencies and Forward
Foreign Currency Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83,738,927
--------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS, FOREIGN CURRENCIES AND FORWARD FOREIGN
CURRENCY CONTRACTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93,234,492
--------------
NET INCREASE IN NET ASSETS FROM OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . $ 94,856,983
--------------
--------------
</TABLE>
See Notes to Financial Statements on Page 10
7
<PAGE>
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INTERNATIONAL EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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 Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,622,491 $ 1,050,869
Net Realized Gain from Investment, Option and Foreign Currency Transactions . . . . . . 9,495,565 6,080,697
Net Change in Unrealized Appreciation on Investments, Options, Foreign Currencies
and Forward Foreign Currency Contracts. . . . . . . . . . . . . . . . . . . . . . . . . 83,738,927 7,989,401
------------- -------------
Net Increase in Net Assets from Operations. . . . . . . . . . . . . . . . . . . . . . . . 94,856,983 15,120,967
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,830,716) (1,680,074)
Net Realized Gain from Investment Transactions. . . . . . . . . . . . . . . . . . . . . (2,293,069) (2,218,709)
------------- -------------
TOTAL DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,123,785) (3,898,783)
------------- -------------
CAPITAL TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Sales of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 416,501,704 98,926,188
Dividend Reinvestments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,988,256 2,166,771
Cost of Shares Redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (146,394,599) (33,430,708)
------------- -------------
NET INCREASE FROM CAPITAL TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST . . . . . . . . . 273,095,361 67,662,251
------------- -------------
TOTAL INCREASE IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 363,828,559 78,884,435
NET ASSETS
Beginning of Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161,691,646 82,807,211
------------- -------------
End of Year (includes undistributed net investment income of $3,081,749 and $1,972,372,
respectively) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 525,520,205 $ 161,691,646
------------- -------------
------------- -------------
</TABLE>
See Notes to Financial Statements on Page 10
8
<PAGE>
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INTERNATIONAL EQUITY FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Contained below are selected data for a share outstanding, total investment
return, ratios to average net assets and other supplemental data for the
periods indicated for the International Equity Fund.
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED FOR THE
SEPTEMBER 30, FOR THE PERIOD YEAR ENDED
--------------------- JANUARY 1, 1995 TO DECEMBER 31,
1997 1996 SEPTEMBER 30, 1995* 1994 1993
---- ---- ------------------- ---- ----
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
NET ASSET VALUE, BEGINNING OF PERIOD. . . . . . . $16.77 $15.47 $13.37 $13.18 $ 9.75
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . . 0.09 0.18 0.14 0.10 0.05
Net Realized and Unrealized Gain on Investments,
Options, Foreign Currencies and Forward
Foreign Currency Contracts . . . . . . . . . . 5.63 1.80 1.97 0.44 3.60
------ ------ ------ ------ ------
Total from Investment Operations. . . . . . . . . 5.72 1.98 2.11 0.54 3.65
------ ------ ------ ------ ------
DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income . . . . . . . . . . . . . 0.16 (0.31) (0.00) (0.09) (0.15)
Net Realized Gain from Investment Transactions. 0.20 (0.37) (0.01) (0.26) (0.07)
------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS . . . . . . . . . . . . . . . 0.36 (0.68) (0.01) (0.35) (0.22)
------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD. . . . . . . . . . $22.13 $16.77 $15.47 $13.37 $13.18
------ ------ ------ ------ ------
------ ------ ------ ------ ------
TOTAL INVESTMENT RETURN . . . . . . . . . . . . . 34.76% 13.42% 15.82% 4.12% 37.38%
SUPPLEMENTAL DATA AND RATIOS:
Net Assets, End of Period (000s omitted). . . . $525,520 $161,692 $82,807 $56,020 $33,869
Ratios to Average Net Assets:
Net Investment Income . . . . . . . . . . . . 0.53% 0.91% 1.55%** 0.84% 0.79%
Expenses, Including Expenses of the
International Equity Portfolio. . . . . . . 1.50% 1.50% 1.50%** 1.50% 1.50%
Decrease Reflected in Above Expense
Ratio Due to Absorption of Expenses by
Bankers Trust . . . . . . . . . . . . . . . 0.18% 0.26% 0.33%** 0.37% 0.62%
</TABLE>
- -------------------------
* On August 2, 1995, the Board of Trustees approved the change of the fiscal
year end from December 31 to September 30.
** Annualized
See Notes to Financial Statements on Page 10
9
<PAGE>
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY 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 International Equity 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 August 4, 1992.
The Fund invests substantially all of its assets in the International Equity
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 92% 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 annually 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 also be made annually.
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. 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 period ended September 30, 1997, the
International Equity Fund reclassified $1,366,192 from net realized gains to
undistributed net investment income and $48,590 from undistributed net
investment income 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 0.85 of 1% of the Fund's average daily net assets.
For the year ended September 30, 1997, this fee aggregated $2,601,064.
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 0.85 of 1% of the
average daily net assets of the Fund, excluding expenses of the Portfolio and
1.50 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 $49,137.
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:
FOR THE FOR THE
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
----------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
Sold 21,331,563 $ 416,501,704 6,278,513 $ 98,926,188
Reinvested 175,785 2,988,256 146,008 2,166,771
Redeemed (7,397,087) (146,394,599) (2,134,450) (33,430,708)
----------- -------------- ----------- -------------
Net Increase 14,110,261 $ 273,095,361 4,290,071 $ 67,662,251
----------- -------------- ----------- -------------
----------- -------------- ----------- -------------
10
<PAGE>
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY 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
International Equity 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 each of the two years in the
period then ended and the financial highlights for the years ended September 30,
1997 and 1996, the period January 1, 1995 to September 30, 1995, and the years
ended December 31, 1994 and 1993. 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 audit.
We conducted our audit 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
audit provides 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
International Equity 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 26, 1997
11
<PAGE>
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY PORTFOLIO
SCHEDULE OF PORTFOLIO INVESTMENTS SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
------ ----------- -----
<S> <C> <C>
COMMON STOCKS - 93.08%
AUSTRALIA - 2.13%
92,700 Brambles Industries Ltd. (Transportation) . . . . $ 1,930,084
411,600 Colonial Ltd. (Investment Management) (a) . . . . 1,355,373
1,265,391 Goodman Fielder Ltd. (Food) . . . . . . . . . . . 2,043,563
1,508,616 National Mutual Holdings Ltd. (Insurance) . . . . 2,545,618
344,200 TABCORP Holdings Ltd. (Leisure Time). . . . . . . 1,744,887
271,000 Woodside Petroleum Ltd. (Oil) . . . . . . . . . . 2,585,113
------------
12,204,638
------------
AUSTRIA - 1.12%
42,800 OMV AG (Oil/Gas). . . . . . . . . . . . . . . . . 6,387,443
------------
BELGIUM - 0.99%
55,700 Credit Communal Holding/Dexia (Banks) . . . . . . 5,654,978
------------
BOTSWANA - 0.19%
850,000 Sechaba Breweries Ltd. (Beverages). . . . . . . . 1,061,565
------------
BRAZIL - 0.86%
132,270 Companhia Paranaense de Energia-Copel,
ADR (Electric) (a). . . . . . . . . . . . . . . 2,281,658
22,941,000 Telecommunicacoes Brasileiras-Telebras
(Telecommunications). . . . . . . . . . . . . . 2,648,810
------------
4,930,468
------------
CANADA - 4.23%
136,600 Bank of Montreal (Financial Services) . . . . . . 5,818,440
184,600 Ispat International NV (Other Non-Ferrous) (a). . 5,284,175
198,000 Newcourt Credit Group, Inc. (Finance) . . . . . . 7,438,603
114,900 Royal Bank of Canada (Financial Services) . . . . 5,641,966
------------
24,183,184
------------
FINLAND - 4.48%
160,600 KCI Konecranes International Corp.
(Capital Equipment) . . . . . . . . . . . . . . 6,653,186
72,355 Nokia AB, ADR-A (Telecommunications). . . . . . . 6,787,803
250,550 Rauma Group (Machinery) . . . . . . . . . . . . . 5,213,472
250,300 UPM-Kymmene Corp. (Forest Products) . . . . . . . 6,960,143
------------
25,614,604
------------
FRANCE - 13.90%
28,807 Accor SA (Lodging). . . . . . . . . . . . . . . . 5,322,220
85,500 AXA-UAP (Insurance) . . . . . . . . . . . . . . . 5,736,320
87,248 Banque Nationale de Paris (Banks) . . . . . . . . 4,396,080
20,780 Christian Dior (Consumer Goods) . . . . . . . . . 2,805,836
30,800 Compagnie Generale des Eaux (Diversified) . . . . 3,624,018
92,000 Dassault Systemes SA (Computer Software). . . . . 5,888,000
47,000 Elf Aquitaine SA (Energy) . . . . . . . . . . . . 6,274,906
19,920 Groupe Danone (Food Processing) . . . . . . . . . 3,139,678
51,600 Lyonnaise des Eaux SA (Diversified) . . . . . . . 5,758,268
101,439 Michelin-B (Tire & Rubber). . . . . . . . . . . . 5,762,608
58,900 Total SA-B (Oil & Gas). . . . . . . . . . . . . . 6,741,698
210,200 Renault SA (Auto) (a) . . . . . . . . . . . . . . 6,232,794
101,932 Schneider SA (Electronics). . . . . . . . . . . . 6,434,973
57,910 SGS-Thomson Microelectronics NV
(Semiconductors) (a). . . . . . . . . . . . . . 5,436,301
298,100 Usinor Sacilor (Steel). . . . . . . . . . . . . . 6,025,115
------------
79,578,815
------------
GERMANY - 6.79%
45,300 Adidas AG (Consumer Goods) (b). . . . . . . . . . 5,896,541
70,200 Daimler-Benz AG (Autos & Trucks). . . . . . . . . 5,795,018
97,600 Hoechst AG (Chemicals) (a). . . . . . . . . . . . 4,332,375
22,600 SAP AG-Vorzug (Software). . . . . . . . . . . . . 6,039,633
34,600 SGL Carbon AG (Diversified) . . . . . . . . . . . 5,083,626
22,100 Thyssen AG (Steel). . . . . . . . . . . . . . . . 5,155,247
9,470 Volkswagen AG (Consumer Goods). . . . . . . . . . 6,578,921
------------
38,881,361
------------
HONG KONG - 5.47%
4,879,000 Beijing Datang Power Generation Co. Ltd.
(Electric) (a). . . . . . . . . . . . . . . . . 2,742,605
1,502,000 First Tractor Co. Ltd.-H (Machinery) (a). . . . . 1,232,500
222,000 Cheung Kong Holdings Ltd. (Real Estate) . . . . . 2,495,833
767,500 China Everbright International Ltd. (Steel) (a) . 535,569
3,736,000 China Foods Holdings Ltd. (Food). . . . . . . . . 2,558,739
880,000 China Resources Enterprises Ltd. (Real Estate). . 3,684,435
1,752,000 Cosco Pacific Ltd. (Commercial Services). . . . . 3,113,006
1,411,000 Gaungnan Holdings (Misc. Distributors). . . . . . 1,732,183
270,000 Hutchison Whampoa Ltd. (Diversified). . . . . . . 2,660,400
395,000 New World Development Co. Ltd. (Real Estate). . . 2,388,835
2,076,000 NG Fung Hong (Foods). . . . . . . . . . . . . . . 2,494,902
5,386,000 Perfect Treasure Holding Ltd.
(Distribution/Wholesale). . . . . . . . . . . . 2,453,402
350,000 Shanghai Industrial Holdings Ltd.
(Diversified) . . . . . . . . . . . . . . . . . 2,175,486
2,926,000 Texwinca Holdings Ltd. (Textile). . . . . . . . . 1,058,706
------------
31,326,601
------------
HUNGARY - 0.48%
124,500 Mol Magyar Olaj Es Gazipari
(Oil-International) (b) . . . . . . . . . . . . 2,731,144
------------
INDIA - 0.30%
101,700 Videsh Sanchar Nigam Ltd. (Telecom Services). . . 1,703,475
------------
INDONESIA - 0.70%
1,080,000 Citra Marga Nusaphala Persada PT
(Capital Equipment) . . . . . . . . . . . . . . 330,275
194,100 Fiskaragung Perkasa PT (Food) . . . . . . . . . . 115,748
120,500 Gulf Indonesia Resources Ltd. (Oil) (a) . . . . . 2,696,188
1,635,600 Lippo Life Insurance PT (Insurance) (a) . . . . . 325,119
255,000 Ramayana Lestari Sentosa PT (Retail). . . . . . . 526,376
------------
3,993,706
------------
IRELAND - 3.25%
463,600 Bank of Ireland (Finance) . . . . . . . . . . . . 5,790,799
630,800 CRH Plc. (Building Materials) . . . . . . . . . . 7,198,805
1,685,100 Jefferson Smurfit Group Plc. (Packaging &
Container). . . . . . . . . . . . . . . . . . . 5,641,125
------------
18,630,729
------------
ITALY - 7.00%
1,822,400 Autostrade Concessioni E Costruzioni
Autostrade SPA (Transportation) . . . . . . . . 4,065,853
265,000 Banca Nazionale del Lavoro (Finance). . . . . . . 2,940,008
887,300 Bulgari SPA (Retail). . . . . . . . . . . . . . . 5,648,301
804,800 ENI SPA (Oil/Gas) (a) . . . . . . . . . . . . . . 5,069,496
12,700 ENI SPA, ADR (Oil) (a). . . . . . . . . . . . . . 797,719
3,023,100 Credito Italiano (Banks). . . . . . . . . . . . . 8,181,194
3,738,000 Parmalat Finanziaria SPA (Financial Services) . . 6,411,775
1,046,200 Telecom Italia SPA (Telecommunications) . . . . . 6,972,040
------------
40,086,386
------------
</TABLE>
See Notes to Financial Statements on Pages 17 and 18
12
<PAGE>
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY PORTFOLIO
SCHEDULE OF PORTFOLIO INVESTMENTS SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
------ ----------- -----
<S> <C> <C>
JAPAN - 7.40%
92,600 AJL Peps Trust (Consumer Goods) . . . . . . . . . $ 1,475,813
194,000 Canon, Inc. (Capital Equipment) . . . . . . . . . 5,672,327
144,000 Fuji Photo Film Co. (Chemicals) . . . . . . . . . 5,939,866
62,500 Nintendo Corp. Ltd. (Electronics) . . . . . . . . 5,849,830
170,000 Sankyo Co. Ltd. (Pharmaceuticals) . . . . . . . . 5,885,861
61,200 Sony Corp. (Electronics). . . . . . . . . . . . . 5,778,845
494,000 Takashimaya Co. Ltd. (Retail) . . . . . . . . . . 5,073,800
223,000 Takeda Chemical Industries
(Pharmaceuticals) . . . . . . . . . . . . . . . 6,686,491
------------
42,362,833
------------
MALAYSIA - 0.21%
379,000 United Engineers Ltd. (Engineering &
Construction) . . . . . . . . . . . . . . . . . 1,215,980
------------
MEXICO - 1.06%
187,100 Grupo Elektra SA de CV (Retail) . . . . . . . . . 2,988,595
86,400 Grupo Televisa, GDR (Broadcasting) (a). . . . . . 3,094,200
------------
6,082,795
------------
NETHERLANDS - 4.65%
117,023 ING Groep NV (Financial Services) . . . . . . . . 5,362,665
192,478 Koninklijke Ahold NV (Food) . . . . . . . . . . . 5,205,246
82,500 Koninklijke Nederlandsche Hoogovens en
Staalfabrieken NV (Metal Processors). . . . . . 5,345,456
87,350 Philips Electronics NV (Electronics). . . . . . . 7,394,059
132,300 Vedior NV CVA (Human Resources) . . . . . . . . . 3,291,872
------------
26,599,298
------------
PORTUGAL - 4.50%
131,631 Banco Comercial Portugues, SA (Banks) . . . . . . 2,780,730
125,295 BPI-SGPS, SA (Finance). . . . . . . . . . . . . . 2,853,756
127,100 Cimpor-Cimentos de Portugal SA (Building
Products) . . . . . . . . . . . . . . . . . . . 3,436,816
294,900 Electricidade de Portugal SA (Electric) (a) . . . 5,065,827
137,600 Portugal Telecom SA (Telephone) . . . . . . . . . 5,970,469
69,700 Telecel-Comunicacaoes Pessoais, SA
(Telecommunications) (a). . . . . . . . . . . . 5,657,216
------------
25,764,814
------------
RUSSIA - 1.02%
36,700 Tatneft ADR (Oil) (b) . . . . . . . . . . . . . . 5,816,950
------------
SINGAPORE - 0.70%
386,000 Datacraft Asia Ltd. (Telecommunication
Equipment). . . . . . . . . . . . . . . . . . . 1,227,480
134,000 Development Bank of Singapore Ltd.
(Banks) . . . . . . . . . . . . . . . . . . . . 1,366,275
329,000 Venture Manufacturing (Singapore) Ltd.
(Computer Services) . . . . . . . . . . . . . . 1,397,712
------------
3,991,467
------------
SOUTH AFRICA - 0.30%
17,570 Liberty Life Association of Africa (Finance). . . 512,498
187,816 Persetel Holdings Ltd. (Computers-Info Tech). . . 1,232,637
------------
1,745,135
------------
SPAIN - 3.71%
104,200 Aldeasa, SA (Retail) (a). . . . . . . . . . . . . 2,284,199
103,500 Banco Popular Espanol SA (Banks). . . . . . . . . 6,660,857
47,224 Fomento de Construcciones y Contratas
(Capital Equipment) . . . . . . . . . . . . . . 7,281,303
159,950 Telefonica de Espana (Telecommunications) . . . . 5,028,930
------------
21,255,289
------------
SWEDEN - 4.41%
212,233 Astra AB-A (Drugs). . . . . . . . . . . . . . . . 3,918,578
442,400 Castellum AB (Real Estate) (a). . . . . . . . . . 4,259,176
82,300 Electrolux AB-Ser. B (Furniture). . . . . . . . . 6,436,386
128,400 Nordbanken AB (Finance) . . . . . . . . . . . . . 4,385,836
11,200 Svedala Industries (Capital Equipment). . . . . . 261,445
208,100 Volvo AB-B (Autos & Trucks) . . . . . . . . . . . 5,969,238
------------
25,230,659
------------
SWITZERLAND - 4.86%
3,740 ABB AG-Bearer (Engineering) . . . . . . . . . . . 5,516,133
15,200 Adecco SA (Commercial Services) . . . . . . . . . 6,122,702
3,390 Novartis AG (Medical) . . . . . . . . . . . . . . 5,205,329
573 Roche Holding AG-Genusschine
(Pharmaceuticals) . . . . . . . . . . . . . . . 5,089,651
13,500 Zurich Vericherungs-Gesellschaft (Insurance). . . 5,884,115
------------
27,817,930
------------
THAILAND - 0.25%
106,600 PTT Exploration & Production (Energy) . . . . . . 1,427,207
------------
UNITED KINGDOM - 7.36%
248,800 Barclays Plc. (Banks) . . . . . . . . . . . . . . 6,730,008
274,700 British Aerospace Plc. (Aerospace). . . . . . . . 7,381,788
497,200 British Land Co. Plc. (Real Estate) . . . . . . . 5,236,713
66,260 British Petroleum Plc., ADR (Oil) . . . . . . . . 6,017,236
211,200 Glaxo Wellcome Plc. (Pharmaceuticals) . . . . . . 4,757,650
493,100 Ionica Group Plc. (Telecom Services) (a). . . . . 3,054,784
428,200 Millennium & Copthorne Hotels Plc.
(Services). . . . . . . . . . . . . . . . . . . 2,984,747
930,200 SOCO International Plc. (Oil) (a) . . . . . . . . 5,973,163
------------
42,136,089
------------
UNITED STATES - 0.41%
64,200 Pharmacia & Upjohn, Inc. (Medical). . . . . . . . 2,343,300
------------
VENEZUELA - 0.35%
1,235,561 Electricidad de Caracas (Utilities) . . . . . . . 1,991,799
2 Mavesa SA, ADR (Consumer Goods) (b) . . . . . . . 17
------------
1,991,816
------------
TOTAL COMMON STOCKS (Cost $424,422,419) . . . . . . . . . . . . 532,750,659
------------
Principal
Amount
- ---------
CORPORATE DEBT NON-CONVERTIBLE - 0.37%
SOUTH AFRICA - 0.37%
$1,590,000 Liberty Life International, 6.50%, 9/30/04
(Finance) . . . . . . . . . . . . . . . . . . . 2,138,550
------------
TOTAL CORPORATE DEBT NON-CONVERTIBLE (Cost $2,006,727). . . . . 2,138,550
------------
Shares
- ------
PREFERRED STOCKS CONVERTIBLE - 0.32%
SOUTH AFRICA - 0.32%
136,750 Sasol Ltd. 8.50% Common (Diversified) (a) . . . . 1,818,445
------------
TOTAL PREFERRED STOCKS CONVERTIBLE (Cost $1,656,020). . . . . . 1,818,445
------------
</TABLE>
See Notes to Financial Statements on Pages 17 and 18
13
<PAGE>
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY PORTFOLIO
SCHEDULE OF PORTFOLIO INVESTMENTS SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
------ ----------- -----
<S> <C> <C>
SHORT TERM INSTRUMENTS - 11.11%
U.S.A. - 11.11%
63,588,544 BT Institutional Cash Management Fund
(Cost $63,588,544). . . . . . . . . . . . . . . $ 63,588,544
------------
OPTIONS - 0.27%
275 Merrill Lynch Euro Bonds. . . . . . . . . . . . . 1,787
1,396 Nikkei 225 Index . . . . . . . . . . . . . . . . 1,570,000
------------
TOTAL OPTIONS (Cost $2,386,750) . . . . . . . . . . . . . . . . 1,571,787
------------
TOTAL INVESTMENTS (Cost $494,060,460) . . . . . . . . 105.15% 601,867,985
Liabilities in Excess of Other Assets . . . . . . . . (5.15)% (29,463,123)
-------- ------------
NET ASSETS. . . . . . . . . . . . . . . . . . . . . . 100.00% $572,404,862
-------- ------------
-------- ------------
</TABLE>
(a) Non-Income Producing Security
(b) Security exempt from registration under Rule 144A of the Securities Act of
1933. This Security may be resold in transactions exempt from
registrations, normally to qualified institutional buyers.
Industry Diversification (as a percentage of Total Investments):
Money Market . . . . . . . . . . . . . . 10.59%
Banks. . . . . . . . . . . . . . . . . . 10.53%
Consumer Goods . . . . . . . . . . . . . 8.05%
Oil and Gas. . . . . . . . . . . . . . . 6.53%
Telecommunications . . . . . . . . . . . 6.30%
Pharmaceuticals. . . . . . . . . . . . . 5.65%
Leisure. . . . . . . . . . . . . . . . . 5.19%
Autos. . . . . . . . . . . . . . . . . . 5.06%
Diversified. . . . . . . . . . . . . . . 4.59%
Food . . . . . . . . . . . . . . . . . . 3.08%
Capital Equipment. . . . . . . . . . . . 3.02%
Finance. . . . . . . . . . . . . . . . . 2.72%
Retail . . . . . . . . . . . . . . . . . 2.68%
Insurance. . . . . . . . . . . . . . . . 2.50%
Real Estate. . . . . . . . . . . . . . . 2.40%
Energy . . . . . . . . . . . . . . . . . 2.17%
Paper. . . . . . . . . . . . . . . . . . 2.10%
Utilities. . . . . . . . . . . . . . . . 2.07%
Computer Software. . . . . . . . . . . . 1.99%
Steel. . . . . . . . . . . . . . . . . . 1.88%
Services . . . . . . . . . . . . . . . . 1.57%
Transportation . . . . . . . . . . . . . 1.52%
Electronics. . . . . . . . . . . . . . . 1.31%
Aerospace. . . . . . . . . . . . . . . . 1.23%
Machinery. . . . . . . . . . . . . . . . 1.07%
Other* . . . . . . . . . . . . . . . . . 4.20%
-------
100.00%
-------
-------
* No one industry represents more than 1.00% of the Portfolio.
See Notes to Financial Statements on Pages 17 and 18
14
<PAGE>
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <S>
ASSETS
Investment, at Value (Cost of $494,060,460) . . . . . . . . . . . . . . $ 601,867,985
Cash* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,008,112
Receivable for Securities Sold. . . . . . . . . . . . . . . . . . . . . 17,492,290
Unrealized Appreciation on Forward Foreign Currency Contracts . . . . . 526,907
Receivable for Foreign Taxes Withheld . . . . . . . . . . . . . . . . . 439,376
Dividends and Interest Receivable . . . . . . . . . . . . . . . . . . . 873,064
Prepaid Expenses and Other. . . . . . . . . . . . . . . . . . . . . . . 15,339
--------------
Total Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 625,223,073
--------------
LIABILITIES
Due to Bankers Trust. . . . . . . . . . . . . . . . . . . . . . . . . . 540,112
Payable for Securities Purchased. . . . . . . . . . . . . . . . . . . . 48,824,964
Unrealized Depreciation on Forward Foreign Currency Contracts . . . . . 3,433,288
Accrued Expenses and Other. . . . . . . . . . . . . . . . . . . . . . . 19,847
--------------
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52,818,211
--------------
NET ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 572,404,862
--------------
--------------
COMPOSITION OF NET ASSETS
Paid-in Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 467,485,165
Net Unrealized Appreciation on Investments, Options,
Foreign Currencies and Forward Foreign Currency Contracts . . . . . . 104,919,697
--------------
NET ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 572,404,862
--------------
--------------
- -----------------------------
* Includes foreign cash of $5,343,391 with a cost of $5,351,946.
- -----------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 1997
- -----------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign withholding tax of $553,160). . . . . . . . . $ 5,207,630
Interest (net of foreign withholding tax of $9,090) . . . . . . . . . . 1,143,558
--------------
TOTAL INVESTMENT INCOME . . . . . . . . . . . . . . . . . . . . . . . . . 6,351,188
--------------
EXPENSES
Advisory Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,060,310
Administration and Services Fees. . . . . . . . . . . . . . . . . . . . 475,456
Professional Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,500
Transfer Tax. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,454
Miscellaneous Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . 2,945
Trustees Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,035
--------------
Total Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,589,700
Less: Expenses Absorbed by Bankers Trust. . . . . . . . . . . . . . . . (529,390)
--------------
Net Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,060,310
--------------
NET INVESTMENT INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . 4,290,878
--------------
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS, OPTIONS, FORWARD
CURRENCIES AND FORWARD FOREIGN CURRENCY CONTRACTS
Net Realized Gain/(Loss) from:
Investment Transactions . . . . . . . . . . . . . . . . . . . . . . . 8,795,606
Foreign Currency Transactions . . . . . . . . . . . . . . . . . . . . 1,940,056
Net Realized Loss from Option Transactions. . . . . . . . . . . . . . (679,308)
Net Change in Unrealized Appreciation on Investments, Options, Foreign
Currencies and Forward Foreign Currency Contracts . . . . . . . . . . 85,109,689
--------------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS, OPTIONS, FOREIGN
CURRENCIES AND FORWARD FOREIGN CURRENCY CONTRACTS. . . . . . . . . . 95,166,043
--------------
NET INCREASE IN NET ASSETS FROM OPERATIONS. . . . . . . . . . . . . . . . $ 99,456,921
--------------
--------------
</TABLE>
See Notes to Financial Statements on Pages 17 and 18
15
<PAGE>
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------ ------------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM:
OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,290,878 $ 2,056,967
Net Realized Gain from Investment, Options and Foreign Currency Transactions. . . . 10,056,354 6,127,926
Net Change in Unrealized Appreciation on Investments, Options, Foreign Currencies
and Forward Foreign Currency Contracts. . . . . . . . . . . . . . . . . . . . . . 85,109,689 8,042,701
-------------- --------------
Net Increase in Net Assets from Operations. . . . . . . . . . . . . . . . . . . . . . 99,456,921 16,227,594
-------------- --------------
CAPITAL TRANSACTIONS
Proceeds from Capital Invested. . . . . . . . . . . . . . . . . . . . . . . . . . . 476,033,118 104,050,782
Value of Capital Withdrawn. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (167,898,538) (38,778,446)
-------------- --------------
Net Increase in Net Assets from Capital Transactions. . . . . . . . . . . . . . . . . 308,134,580 65,272,336
-------------- --------------
TOTAL INCREASE IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 407,591,501 81,499,930
NET ASSETS
Beginning of Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164,813,361 83,313,431
-------------- --------------
End of Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 572,404,862 $ 164,813,361
-------------- --------------
-------------- --------------
</TABLE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Contained below are selected supplemental data and ratios for each of the
periods indicated for the International Equity Portfolio.
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED FOR THE
SEPTEMBER 30, FOR THE PERIOD YEAR ENDED
--------------------- JANUARY 1, 1995 TO DECEMBER 31,
1997 1996 SEPTEMBER 30, 1995* 1994 1993
---- ---- ------------------- ---- ----
<S> <C> <C> <C> <C> <C>
SUPPLEMENTAL DATA AND RATIOS:
Net Assets, End of Period (000s omitted). . . . $572,405 $164,813 $83,313 $56,042 $33,907
Ratios to Average Net Assets:
Net Investment Income . . . . . . . . . . . . 1.35% 1.76% 2.39%* 1.69% 1.64%
Expenses 0.65% . . . . . . . . . . . . . . . 0.65% 0.65%* 0.65% 0.65%
Decrease Reflected in Above Expense
Ratios Due to Absorption of Expenses by
Bankers Trust. . . . . . . . . . . . . . . 0.17% 0.20% 0.22%* 0.24% 0.39%
Portfolio Turnover Rate. . . . . . . . . . 63% 68% 21% 15% 17%
Average Commission per Share** . . . . . . $ 0.0104 $ 0.0099
</TABLE>
+ On August 2, 1995, the Board of Trustees approved the change of the fiscal
year end from December 31 to September 30.
* Annualized
** For the 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 Pages 17 and 18
16
<PAGE>
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1--ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
A. ORGANIZATION
The International Equity 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 December 11, 1991
as an unincorporated trust under the laws of New York and commenced operations
on August 4, 1992. 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 the
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 INTEREST INCOME
Security transactions are accounted for on a trade date basis. Dividend income,
less foreign taxes withheld, if any, is recorded on the ex-dividend date or upon
receipt of ex-dividend notification in the case of certain foreign securities.
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 security and foreign currency 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 Advisers, 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. FOREIGN CURRENCY TRANSACTIONS
The books and records of the Portfolio are maintained in U.S. dollars. All
assets and liabilities initially expressed in foreign currencies are converted
into U.S. dollars at prevailing exchange rates. Purchases and sales of
investment securities, dividend and interest income, and certain expenses are
translated at the rates of exchange prevailing on the respective dates of such
transactions.
F. FORWARD FOREIGN CURRENCY CONTRACTS
The Portfolio may enter into forward foreign currency contracts for the purpose
of settling specific purchases or sales of securities denominated in a foreign
currency or with respect to the Portfolio's investments. The net U.S. dollar
value of foreign currency underlying all contractual commitments held by the
Portfolio and the resulting unrealized appreciation or depreciation are
determined using prevailing exchange rates. With respect to forward foreign
currency contracts, losses in excess of amounts recognized in the Statement of
Assets and Liabilities may arise due to changes in the value of the foreign
currency or if the counterparty does not perform under the contract.
G. OPTION CONTRACTS
Upon the purchase of a put option or a call option by a 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 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.
H. FUTURES CONTRACTS
The Portfolio may enter into financial futures contracts which are contracts to
buy a standard quantity of securities at a specified price on a future date.
The Portfolio is required to deposit either in cash or securities an amount
equal to a certain percentage of the contract amount. Subsequent payments are
made or received by the Portfolio each day, dependent on the daily fluctuations
in the value of the underlying security, and are recorded for financial
statement purposes as unrealized gains or losses by the Portfolio.
Futures contracts are valued at the settlement price established each day by the
board of trade or exchange on which they are traded.
I. 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.
J. 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 0.15 of 1% of the Portfolio's average daily
net assets.
17
<PAGE>
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
For the year ended September 30, 1997, this fee aggregated $475,456.
The Portfolio has entered into an Advisory Agreement with Bankers Trust. Under
this Advisory Agreement, the Portfolio pays Bankers Trust an advisory 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 $2,060,310.
Bankers Trust has voluntarily undertaken to waive and reimburse expenses of the
Portfolio, to the extent necessary, to limit all expenses to 0.65 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 $529,390.
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 year ended September 30, 1997, the Portfolio paid brokerage commissions
of $1,733,727.
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
$478,196,599 and $190,174,544, respectively.
For federal income tax purposes, the tax basis of investments held at September
30, 1997 was $494,060,460. The aggregate gross unrealized appreciation for all
investments was $112,508,447 and the aggregate gross unrealized depreciation for
all investments was $4,700,922.
- --------------------------------------------------------------------------------
NOTE 4--OPEN FORWARD FOREIGN CURRENCY CONTRACTS
As of September 30, 1997, the International Equity Portfolio had the following
open forward foreign currency contracts outstanding:
<TABLE>
<CAPTION>
NET UNREALIZED
APPRECIATION
CONTRACTS TO DELIVER IN EXCHANGE FOR SETTLEMENT DATE VALUE (US$) (DEPRECIATION) (US$)
- --------------------------------------------------------------------------------------------------------------------
SALES
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CHF 37,833,595 USD 25,160,000 10/03/97 26,139,004 (979,004)
CHF 43,572,000 USD 30,258,333 10/03/97 30,103,634 154,699
DEM 29,682,900 USD 16,770,000 10/10/97 16,865,284 (95,284)
FRF 150,311,675 USD 24,360,000 10/03/97 25,424,413 (1,064,413)
- --------------------------------------------------------------------------------------------------------------------
Total Sales (1,984,002)
- --------------------------------------------------------------------------------------------------------------------
PURCHASES
- --------------------------------------------------------------------------------------------------------------------
CHF 2,350,000 USD 1,617,900 10/01/97 1,618,123 223
CHF 11,943,630 USD 8,408,786 10/03/97 8,251,783 (157,003)
CHF 31,628,370 USD 22,959,037 10/03/97 21,851,852 (1,107,185)
DEM 3,300,000 USD 1,874,148 10/01/97 1,868,418 (5,730)
ESP 157,000,000 USD 1,056,101 10/01/97 1,052,490 (3,611)
ESP 61,000,000 USD 410,498 10/02/97 408,929 (1,569)
FIM 4,600,000 USD 873,860 10/01/97 870,157 (3,703)
FIM 4,810,000 USD 912,713 10/02/97 909,882 (2,831)
GBP 15,829,146 USD 25,200,000 10/03/97 25,571,985 371,985
MXN 1,200,000 USD 154,639 10/01/97 154,331 (308)
NLG 2,900,000 USD 1,462,578 10/01/97 1,457,726 (4,852)
PTE 260,500,000 USD 1,452,467 10/02/97 1,448,188 (4,279)
SEK 9,600,000 USD 1,269,589 10/01/97 1,266,073 (3,516)
- --------------------------------------------------------------------------------------------------------------------
Total Purchases (922,379)
- --------------------------------------------------------------------------------------------------------------------
Net Depreciation (2,906,381)
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY PORTFOLIO
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Trustees and Holders of Beneficial Interest of the International Equity
Portfolio:
We have audited the accompanying statement of assets and liabilities, including
the schedule of portfolio investments, of the International Equity Portfolio 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 and 1996, the period January 1, 1995 to September 30, 1995, and the years
ended December 31, 1994 and 1993. 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 audit.
We conducted our audit 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
audit provides 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
International Equity Portfolio 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 26, 1997
19
<PAGE>
BT INVESTMENT FUNDS
BT INTERNATIONAL EQUITY 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.
----------------------------------
STA463200 (11/97)
