o BT INVESTMENT FUNDS o
Utility Fund
ANNUAL REPORT
---------------
DECEMBER o 1996
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Utility Fund
Table of Contents
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Letter to Shareholders ..................................................... 3
Utility Fund
Statement of Assets and Liabilities .................................. 5
Statement of Operations .............................................. 5
Statement of Changes in Net Assets ................................... 6
Financial Highlights ................................................. 7
Notes to Financial Statements ........................................ 8
Report of Independent Accountants .................................... 9
Utility Portfolio
Schedule of Portfolio Investments .................................... 10
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
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Utility Fund
Letter to Shareholders
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The Utility Fund (the "Fund") returned 4.67% for the twelve months ended
December 31, 1996, outperforming its benchmark, the S&P Utility Index, which had
a return of 3.12% for the same time period. Since its inception on August 3,
1992, the Fund is up 36.86%, cumulatively, as of December 31, 1996. This is a
7.37% average annualized total return.*
It should be noted that performance for the Fund is difficult to measure against
the traditional S&P Utility Index because, as indicated in our last report, the
composition of the Index was changed as of July 1, 1996 to eliminate the
telecommunications sector. As a result, for attribution comparisons going
forward, the Fund currently has under consideration a modified benchmark, which
is more accurately representative of the Fund objective.**
MARKET ACTIVITY
The process of dramatic change that began for the utility industry in early 1996
continued throughout the remainder of the year.
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Objective
Seeks high level of current income with the preservation of capital. Also seeks
to achieve growth of income and capital appreciation, but only when consistent
with the primary objective.
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The electric utility sector is in the midst of a monumental transition from a
vertically integrated, monopoly driven industry to one that is anticipated to be
very competitive and significantly restructured over the next few years. In
fact, all utility customers are expected to have competitive choices in the next
five to ten years. Electric utility price performance clearly reflected the
uncertainties and risks associated with this transition, overall finishing down
for the year. Still, electric prices did have two upswings--at the end of the
second quarter and again in the early fourth quarter--most likely reflecting
investors growing appetite for defensive issues. The telecommunications industry
also went through a transition this past year. On February 1, 1996, the Telecom
Bill was passed by both the House and the Senate. This legislation allows long
distance carriers to compete in the local telephone market nationwide and
ultimately allows the incumbent local exchange carriers to enter into the long
distance industry. Price performance reflected the changing dynamics, with the
regional Bell operating companies and GTE, for example, down through September
1996 and then up through the end of the year. This sub-sector finished
relatively flat for the twelve months overall. Long distance carriers'
performance was down through July and then struggled back to finish flat as
well--primarily due to the challenges faced by AT&T.
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Investment Instruments
Equity securities of public utility companies including the electric, natural
gas, water, telephone, telegraph and other public communication sectors.
- --------------------------------------------------------------------------------
The natural gas sector's price performance remained very positive for the year,
as merger and acquisition activity and the supply/demand balance continued to
favor these securities.
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Ten Largest Stock Holdings
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Bell Atlantic Corp. CINergy Corp.
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Ameritech Corp. SBC Communications, Inc.
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GTE Corp. Enron Corp.
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Teleport Communications Group, Inc. Southern Co.
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BellSouth Corp. FPL Group, Inc.
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INVESTMENT REVIEW
The Fund outperformed its benchmark for the year primarily due to strong stock
selection and its sector weighting strategy. For most of the year, the Fund
stayed overweighted in the natural gas sector, underweighted in the
telecommunications sector, and neutral in the electric utility sector.
The telecommunications sector remained difficult to anticipate, so, given the
changing dynamics of the industry, we concentrated on companies with strong
fundamentals and competitive positioning. Within the electric utility sector, we
focused on those companies that are well positioned for a deregulated market.
Natural gas fundamentals remained intact, with prices around the $3.00/mcf mark.
Slightly cooler weather, full pipeline capacity from Canada, growing energy
demands from Asia, and tighter supply coming out of the MidEast all led to a
positive scenario for the natural gas sector in 1996.
MANAGER OUTLOOK
In light of growing competitive and deregulation pressures throughout, we
continue to focus on high quality names in the electric, natural gas, and
telecommunications sectors. We anticipate that the transition being undergone by
the electric utilities will continue to unfold over the next two years. We
believe that companies will realign and/or disaggregate their businesses, as
some exit the generation business and others exit the distribution business.
Still others will create larger companies, particularly seeking new business
opportunities in the gas industry, international power industry, power
marketing, and elsewhere.
There have already been six transactions in this sector, all converging
electrics and natural gas. In general, this combination includes large stock
price premiums for the gas company, less regulatory scrutiny than in the
purchase of one electric utility by another, and dilution for the acquiring
electric utility shareholders in the first year or two of the combination. The
objective is to develop new products and services for electric customers as well
as to accelerate earnings growth in the face of deregulation.
The next year will likely remain a challenge for the electric sector, given the
significant and ongoing merger and acquisition activity
- ----------
* Past performance is not indicative of future results. Investment return and
principal value will fluctuate so than an investor's shares, when redeemed,
may be worth more or less than their original cost.
** The S&P Utility Index was rebalanced from a weighting of electrics (36%),
natural gas (12%) and telecommunications (53%) to a current weighting of
electrics (75%) and natural gas (25%). The modified benchmark under
consideration consists of the following sectors: electrics (45%), natural
gas (15%), telephone (15%), long distance (15%) and cellular and wireless
(10%). The performance would be calculated using the following indices: S&P
Utility Index (60%), S&P Telecom-Telephone Index (15%), S&P Telecom-Long
Distance Index (15%) and S&P Telecom-Cellular/Wireless Index (10%).
3
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Utility Fund
Letter to Shareholders
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[The following table was depicted as a pie graph in the printed material]
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Diversification of Portfolio Investments
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By Sector as of December 31, 1996
(percentages are based on market value)
Utility-Electric 41%
Telecommunications 33%
U.S. Government & Agency 4%
Utility-Gas 22%
here. The dichotomy between those equipped for a more competitive environment
and those unable to adapt will also continue to emerge. Still, valuation levels
may entice investors looking for a defensive posture.
Within the telecommunications industry, the deregulation environment will
probably continue to be an overhang through 1997, as several components to the
Telecommunications Bill are debated. Access charge reform and universal service,
in particular, will be hot topics. Competitive providers will likely continue to
be the biggest winners, as they benefit from an environment favoring
facilities-based companies and from takeover speculation, given MCIC's stated
priority, toward the end of 1996, to enter local markets.
We expect natural gas fundamentals to continue to be very strong. For one, stock
market prices of many of these companies do not even approximate current
commodity pricing valuations. In addition, numerous factors argue for prices to
trend higher, including the fact that the reserve life of natural gas in the
U.S. is under eight years now, as compared to 12.5 years in 1984. We will, of
course, continue to closely observe economic conditions and how they affect the
financial markets, as we seek to provide a high level of current income.
As always, we appreciate your ongoing support of the BT Investment Utility Fund
and look forward to serving your investment needs for many years to come.
/s/ Jim Giblin
--------------
Jim Giblin
Portfolio Manager of the
Utility Portfolio
December 31, 1996
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Performance Comparison
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Comparison of Change in Value of a $10,000 Investment in the Utility Fund and
the S&P Utility Index since August 31, 1992.
- --------------------------------------------------------------------------------
Total Return
Ended December 31, 1996
One Year Since 8/3/92*
4.67% 36.86%
* The Fund's inception date.
Investment return and principal value may fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
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[The following table was depicted as a line graph in the printed material]
---- Utility Fund - $13,645
- - - - S&P Utility Index - $15,833
8/92 10000 10000
9/92 9970 10072
12/92 10215 10327
3/93 11004 11441
6/93 11239 11712
9/93 11784 12532
12/93 11343 11818
3/94 10526 10842
6/94 10059 10839
9/94 10223 10890
12/94 10019 10879
3/95 10415 11630
6/95 10839 12494
9/95 11829 13895
12/95 13036 15353
3/96 12750 14623
6/96 13153 15361
9/96 12602 14843
12/96 13645 15833
Past performance is not indicative of future performance. The S&P Utility Index
is unmanaged, and investments may not be made in an index.
4
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Utility Fund
Statement of Assets and Liabilities December 31, 1996
- --------------------------------------------------------------------------------
Assets
Investment in Utility Portfolio, at Value ..................... $ 7,766,518
Prepaid Expenses and Other .................................... 3,207
Due from Bankers Trust ........................................ 8,119
-----------
Total Assets .................................................. 7,777,844
-----------
Liabilities
Accrued Expenses and Other .................................... 33,779
-----------
Net Assets .................................................... $ 7,744,065
===========
Shares Outstanding ($0.001 par value per share,
unlimited number of shares of beneficial
interest authorized) ..................................... 669,072
===========
Net Asset Value, Offering and Redemption
Price Per Share (net assets divided
by shares outstanding) ................................... $ 11.57
===========
Composition of Net Assets
Paid-in Capital .......................................... $ 9,105,923
Undistributed Net Investment Income ...................... 8,116
Accumulated Net Realized Loss from Investment Transactions (3,099,951)
Net Unrealized Appreciation on Investments ............... 1,729,977
-----------
Net Assets, December 31, 1996 ................................. $ 7,744,065
===========
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Statement of Operations For the year ended December 31, 1996
- --------------------------------------------------------------------------------
Investment Income
Income Allocated from Utility Portfolio, net ....... $ 297,665
---------
Expenses
Administration and Services Fees ................... 54,819
Printing and Shareholder Reports ................... 25,798
Registration Fees .................................. 16,346
Professional Fees .................................. 10,877
Trustees Fees ...................................... 2,652
Miscellaneous ...................................... 1,587
---------
Total Expenses ..................................... 112,079
Less: Expenses Absorbed by Bankers Trust ........... (57,260)
---------
Net Expenses .................................. 54,819
---------
Net Investment Income ................................... 242,846
---------
Realized and Unrealized Gain (Loss) on Investments
Net Realized Gain from Investment Transactions ..... 781,009
Net Change in Unrealized Depreciation on Investments (698,140)
---------
Net Realized and Unrealized Gain on Investments ......... 82,869
---------
Net Increase in Net Assets from Operations .............. $ 325,715
=========
See Notes to Financial Statements on Page 8
5
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Utility Fund
Statement of Changes in Net Assets
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<TABLE>
<CAPTION>
For the For the
year ended year ended
December 31, 1996 December 31, 1995
------------ ------------
<S> <C> <C>
Increase (Decrease) in Net Assets from:
Operations
Net Investment Income ............................................. $ 242,846 $ 553,070
Net Realized Gain (Loss) from Investment Transactions ............. 781,009 (976,540)
Net Change in Unrealized Appreciation (Depreciation) on Investments (698,140) 4,040,936
------------ ------------
Net Increase in Net Assets from Operations ............................. 325,715 3,617,466
------------ ------------
Distributions to Shareholders
Net Investment Income ............................................. (235,462) (569,392)
------------ ------------
Capital Transactions in Shares of Beneficial Interest
Net Proceeds from Shares Sold ..................................... 100,980 518,659
Dividend Reinvestments ............................................ 213,511 401,054
Value of Shares Redeemed .......................................... (2,885,777) (10,646,176)
------------ ------------
Net Decrease from Capital Transactions in Shares of Beneficial Interest. (2,571,286) (9,726,463)
------------ ------------
Total Decrease in Net Assets ........................................... (2,481,033) (6,678,389)
Net Assets
Beginning of Year ...................................................... 10,225,098 16,903,487
------------ ------------
End of Year (including undistributed net investment income
of $8,116 and $732 for 1996 and 1995, respectively) ............... $ 7,744,065 $ 10,225,098
============ ============
</TABLE>
See Notes to Financial Statements on Page 8
6
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Utility Fund
Financial Highlights
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Contained below are selected data for a share outstanding, total investment
return, ratios to average net assets and other supplemental data for each of the
periods presented for the Utility Fund.
<TABLE>
<CAPTION>
For the period
For the year ended August 3, 1992
December 31, (Commencement of
--------------------------------------------------- Operations) to
1996 1995 1994 1993 December 31, 1992
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net Asset Value, Beginning of Period .................... $ 11.37 $ 9.10 $ 10.83 $ 10.10 $ 10.00
---------- ---------- ---------- ---------- ----------
Income from Investment Operations
Net Investment Income ................................. 0.33 0.40 0.48 0.39 0.15
Net Realized and Unrealized Gain (Loss) on
Investment Transactions ............................. 0.19 2.28 (1.74) 0.73 0.10
---------- ---------- ---------- ---------- ----------
Total from Investment Operations ........................ 0.52 2.68 (1.26) 1.12 0.25
---------- ---------- ---------- ---------- ----------
Distributions to Shareholders
Net Investment Income ................................... (0.32) (0.41) (0.47) (0.39) (0.15)
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period ...................... $ 11.57 $ 11.37 $ 9.10 $ 10.83 $ 10.10
========== ========== ========== ========== ==========
Total Investment Return ................................. 4.67% 30.12% (11.67%) 11.04% 6.09%*
Supplemental Data and Ratios:
Net Assets, End of Period (000s omitted) .............. $ 7,744 $ 10,225 $ 16,903 $ 37,558 $ 15,997
Ratios to Average Net Assets:
Net Investment Income ............................... 2.88% 3.79% 4.57% 3.59% 4.55%*
Expenses, including expenses of the Utility Portfolio 1.25% 1.25% 1.25% 1.25% 1.25%*
Decrease Reflected in Above Expense Ratio Due
to Absorption of Expenses by Bankers Trust ........ 1.13% 0.65% 0.48% 0.39% 0.96%*
</TABLE>
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* Annualized
See Notes to Financial Statements on Page 8
7
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Utility Fund
Notes to Financial Statements
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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 Utility 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 3, 1992. The Fund invests
substantially all of its assets in the Utility 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 December 31, 1996, the Fund's investment was 99.9% 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. Dividends 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.
D. Federal Income Taxes
It is the Fund's policy to comply with the requirements of the Internal Revenue
Code and distribute its 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 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.
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 the Trust are allocated among the Funds in
the Trust.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts in the financial statements.
Note 2--Fees and Transactions with Affiliates
The Fund has entered into an Administration and Services Agreement with Bankers
Trust Company ("Bankers Trust"). Under this Administration and Services
Agreement, Bankers Trust provides administrative, custody, transfer agency and
shareholder services to the Fund in return for a fee computed daily and paid
monthly at an annual rate of 0.65 of 1% of the Fund's average daily net assets.
For the year ended December 31, 1996, this fee aggregated $54,819.
On September 30, 1996, the Trust entered into a Distribution Agreement with
Edgewood Services, Inc. ("Edgewood"). Prior to September 30, Signature
Broker-Dealer Services, Inc. ("Signature") was the Trust's distributor. Under
the Distribution Agreement with the Trust, pursuant to Rule 12b-1 of the 1940
Act, Edgewood, and previously Signature, may seek reimbursement at an annual
rate not exceeding 0.20 of 1% of the Fund's average daily net assets, for
expenses incurred in connection with any activities primarily intended to result
in the sale of the Fund's shares. For the year ended December 31, 1996, there
were no reimbursable expenses incurred under this agreement.
Bankers Trust has voluntarily undertaken to waive and reimburse expenses of the
Fund to the extent necessary to limit all expenses to 0.65 of 1% of the average
daily net assets of the Fund, excluding expenses of the Portfolio and 1.25 of 1%
of the average daily net assets of the Fund, including expenses of the
Portfolio. For the year ended December 31, 1996, expenses of the Fund have been
reduced by $57,260.
The Fund is subject to such limitations as may from time to time be imposed by
the Blue Sky laws of states in which the Fund sells its shares. Currently, the
most restrictive jurisdiction imposed expense limitations of 2.5% of the first
$30,000,000 of the average daily net assets, 2.0% of the next $70,000,000 and
1.5% of any excess over $100,000,000.
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 trustees of the Fund. Similarly, none of the Fund's officers
received compensation from the Fund.
Note 3--Shares of Beneficial Interest
At December 31, 1996, there were an unlimited number of shares of beneficial
interest authorized. Transactions in shares of beneficial interest were as
follows:
For the year ended For the year ended
December 31, 1996 December 31, 1995
------------------------ ---------------------------
Shares Amount Shares Amount
-------- ----------- ---------- ------------
Sold .............. 9,068 $ 100,980 53,280 $ 518,659
Reinvested ........ 19,034 213,511 40,122 401,054
Redeemed .......... (257,992) (2,885,777) (1,051,315) (10,646,176)
-------- ----------- ---------- ------------
Net Decrease ...... (229,890) $(2,571,286) (957,913) $ (9,726,463)
======== =========== ========== ============
Note 4--Capital Loss Carryforward
At December 31, 1996, accumulated net realized capital loss carryforward
available as a reduction against future net realized capital gains aggregated
$3,074,589 of which $2,032,104 and $1,042,485 will expire in 2002 and 2003,
respectively.
8
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Utility Fund
Report of Independent Accountants
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To the Trustees and Shareholders of BT Investment Funds:
We have audited the accompanying statement of assets and liabilities of the
Utility Fund (one of the Funds comprising BT Investment Funds) as of December
31, 1996, and the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period then
ended and the financial highlights for each of the four years in the period then
ended and for the period August 3, 1992 (commencement of operations) to December
31, 1992. 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 December 31,
1996, by correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Utility Fund of BT Investment Funds as of December 31, 1996, the results of its
operations, the changes in its net assets and the financial highlights for the
periods referred to above, in conformity with generally accepted accounting
principles.
Coopers & Lybrand L.L.P.
Kansas City, Missouri
February 3, 1997
9
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Utility Portfolio
Schedule of Portfolio Investments December 31, 1996
- --------------------------------------------------------------------------------
Shares Description Value
------ ----------- -----
COMMON STOCKS - 96.08%
Telecommunications - 32.67%
6,000 Alltel Corp. .................................... $ 188,250
4,800 Ameritech Corp. ................................. 291,000
4,900 Bell Atlantic Corp. ............................. 317,275
6,400 BellSouth Corp. ................................. 258,400
6,150 GTE Corp. ....................................... 279,825
8,000 LCC International, Inc. - Cl. A (a) ............. 148,000
4,800 MCI Communications Corp. ........................ 156,900
2,300 MFS Communications Company, Inc. (a) ............ 125,350
4,500 SBC Communications, Inc. ........................ 232,875
2,700 Southern New England
Telecommunications Corp. ........................ 104,962
8,900 Teleport Communications Group, Inc. .............
- Cl.A (a) ...................................... 271,450
2,150 US West Communications Group .................... 69,338
3,600 WorldCom, Inc. (a) .............................. 93,825
----------
2,537,450
----------
Utility-Electric - 41.60%
4,000 American Electric Power Co. ..................... 164,500
4,100 Baltimore Gas & Electric Co. .................... 109,675
5,500 Carolina Power & Light Co. ...................... 200,750
3,600 CILCORP, Inc. ................................... 131,850
7,500 CINergy Corp. ................................... 250,312
5,000 CMS Energy Corp. ................................ 168,125
7,200 DPL, Inc. ....................................... 176,400
5,000 DTE Energy Co. .................................. 161,875
3,700 Duke Power Co. .................................. 171,125
5,000 Enova Corp. ..................................... 113,750
4,500 FPL Group, Inc. ................................. 207,000
7,500 LG&E Energy Corp. ............................... 183,750
4,100 Ohio Edison Co. ................................. 93,275
7,100 PacifiCorp ...................................... 145,550
6,300 Pinnacle West Capital Corp. ..................... 200,025
2,700 Portland General Corp. .......................... 113,400
9,900 Southern Co. .................................... 223,987
3,400 Texas Utilities Co. ............................. 138,550
2,600 Unicom Corp. .................................... 70,525
2,700 Union Electric Co. .............................. 103,950
3,600 WPS Resources Corp. ............................. 102,600
----------
3,230,974
----------
Utility-Gas - 21.81%
5,500 Brooklyn Union Gas Co. .......................... 165,688
3,600 Coastal Corp. ................................... 175,950
1,600 Columbia Gas System ............................. 101,800
1,600 Consolidated Natural Gas ........................ 88,400
5,200 Enron Corp. ..................................... 224,250
1,400 Enron Global Power & Pipe ....................... 37,800
3,900 ENSERCH Corp. ................................... 89,700
5,200 MCN Corp. ....................................... 150,150
2,600 Pacific Enterprises ............................. 78,975
5,000 Questar Corp. ................................... 183,750
4,000 Sonat, Inc. ..................................... 206,000
5,100 Williams Cos .................................... 191,250
----------
1,693,713
----------
Total Common Stocks (Cost $5,732,145) .......................... $7,462,137
----------
Principal
Amount
- ---------
SHORT-TERM INVESTMENTS - 3.72%
U.S. Treasury Bills - 3.72%
$ 280,000 5.30%*, 1/23/97 ................................. $ 279,156
10,000 5.03%*, 2/27/97 ................................. 9,925
----------
Total Short-Term Investments (Cost $289,081) ................. $ 289,081
----------
Total Investments (Cost $6,021,226) - 99.80% ................. $7,751,218
Other Assets Less Liabilities - 0.20% ........................ 15,437
----------
Net Assets - 100% ............................................ $7,766,655
==========
- ----------
(a) Non-income producing security.
* Discount rates.
See Notes to Financial Statements on Page 13
10
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Utility Portfolio
Statement of Assets and Liabilities December 31, 1996
- --------------------------------------------------------------------------------
Assets
Investments, at Value (Cost of $6,021,226) ............... $7,751,218
Cash ..................................................... 8,683
Dividends and Interest Receivable ........................ 22,818
Prepaid Expenses and Other ............................... 36
Due from Bankers Trust ................................... 1,184
----------
Total Assets .................................................. 7,783,939
----------
Liabilities
Accrued Expenses and Other ............................... 17,284
----------
Net Assets .................................................... $7,766,655
==========
Composition of Net Assets
Paid-in capital .......................................... $6,036,663
Net Unrealized Appreciation on Investments ............... 1,729,992
----------
Net Assets, December 31, 1996 ................................. $7,766,655
==========
================================================================================
Statement of Operations For the year ended December 31, 1996
- --------------------------------------------------------------------------------
Investment Income
Dividends ................................................... $ 336,553
Interest .................................................... 11,832
----------
Total Investment Income .......................................... 348,385
----------
Expenses
Advisory Fees ............................................... 54,954
Administration and Services Fees ............................ 8,454
Professional Fees ........................................... 21,494
Trustees Fees ............................................... 2,315
Miscellaneous ............................................... 1,363
----------
Total Expenses .............................................. 88,580
Less: Expenses Absorbed by Bankers Trust ................... (37,865)
----------
Net Expenses ........................................... 50,715
----------
Net Investment Income ............................................ 297,670
----------
Realized and Unrealized Gain (Loss) on Investments
Net Realized Gain from Investment Transactions .............. 781,021
Net Change in Unrealized Depreciation on Investments ........ (698,149)
----------
Net Realized and Unrealized Gain on Investments .................. 82,872
----------
Net Increase in Net Assets from Operations ....................... $ 380,542
==========
See Notes to Financial Statements on Page 13
11
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Utility Portfolio
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the For the
year ended year ended
December 31, 1996 December 31, 1995
------------ ------------
<S> <C> <C>
Increase (Decrease) in Net Assets from:
Operations
Net Investment Income ............................................. $ 297,670 $ 648,004
Net Realized Gain (Loss) from Investment Transactions ............. 781,021 (976,544)
Net Change in Unrealized Appreciation (Depreciation) on Investments (698,149) 4,040,966
------------ ------------
Net Increase in Net Assets from Operations ............................. 380,542 3,712,426
------------ ------------
Capital Transactions
Proceeds from Capital Invested .................................... 317,769 539,419
Value of Capital Withdrawn ........................................ (3,169,611) (12,746,962)
------------ ------------
Net Decrease in Net Assets from Capital Transactions ................... (2,851,842) (12,207,543)
------------ ------------
Total Decrease in Net Assets ........................................... (2,471,300) (8,495,117)
Net Assets
Beginning of Year ...................................................... 10,237,955 18,733,072
------------ ------------
End of Year ............................................................ $ 7,766,655 $ 10,237,955
============ ============
</TABLE>
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Financial Highlights
- --------------------------------------------------------------------------------
Contained below are selected supplemental data and ratios to average net assets
for the periods indicated for the Utility Portfolio.
<TABLE>
<CAPTION>
For the period
For the year ended August 3, 1992
December 31, (Commencement of
------------------------------------------------- Operations) to
1996 1995 1994 1993 December 31, 1992
---------- ---------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
Supplemental Data and Ratios:
Net Assets, End of Period (000s omitted) ......... $ 7,767 $ 10,238 $ 18,733 $ 37,590 $ 16,002
Ratios to Average Net Assets:
Net Investment Income ....................... 3.52% 4.42% 5.21% 4.60% 5.20%*
Expenses .................................... 0.60% 0.60% 0.60% 0.60% 0.60%*
Decrease Reflected in Above Expense Ratio Due
to Absorption of Expenses by Bankers Trust 0.45% 0.31% 0.27% 0.26% 0.57%*
Portfolio Turnover Rate .......................... 24.90% 53.71% 11.43% 0.00%+ 0.00%+
Average Commission Per Share ..................... $ 0.053++
</TABLE>
- ----------
* Annualized
+ Less than 0.01%.
++ For the year beginning on or after September 1, 1995, the Portfolio is
required to disclose its average commission rate per share for purchases or
sales of equity securities.
See Notes to Financial Statements on Page 13
12
<PAGE>
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Utility Portfolio
Notes to Financial Statements
- --------------------------------------------------------------------------------
Note 1--Organization and Significant Accounting Policies
A. Organization
The Utility 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 3, 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 are valued each business day by an independent
pricing service approved by the Trustees. Securities traded on national
exchanges or traded in the NASDAQ National Market System are valued at the last
sales prices reported at the close of business each day. Over-the-counter
securities not included in the NASDAQ National Market System and listed
securities for which no sale was reported are valued at the mean of the bid and
asked prices. Short-term obligations with remaining maturities of 60 days or
less are valued at amortized cost which, with accrued interest, approximates
value. Securities for which quotations are not available are stated at fair
value as determined by the Trustees.
C. Security Transactions and Interest Income
Security transactions are accounted for on a trade date basis. Dividend income
is recorded on the ex-dividend date. Interest income is recorded on the accrual
basis and includes amortization of premium and discount on investments. Realized
gains and losses from securities transactions are recorded on the identified
cost basis.
All of the net investment income and realized and unrealized gains and losses
from the security transactions of the Portfolio are allocated pro rata among the
investors in the Portfolio at the time of such determination.
D. 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.
E. Other
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts in the financial statements.
Note 2--Fees and Transactions with Affiliates
The Portfolio has entered into an Administration and Services Agreement with
Bankers Trust Company ("Bankers Trust"). Under this Administration and Services
Agreement, Bankers Trust provides administrative, custody, transfer agency and
shareholder services to the Portfolio in return for a fee computed daily and
paid monthly at an annual rate of 0.10 of 1% of the Portfolio's average daily
net assets. For the year ended December 31, 1996, this fee aggregated $8,454.
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 December 31, 1996, this
fee aggregated $54,954.
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 December 31, 1996,
expenses of the Portfolio have been reduced by $37,865.
Certain trustees and officers of the Portfolio are also directors, officers and
employees of Edgewood Services, Inc., the distributor of the BT Investment
Funds. None of the trustees so affiliated received compensation for services as
trustees of the Portfolio. Similarly, none of the Portfolio's officers received
compensation for services as trustees of the Portfolio.
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 December 31, 1996, were
$2,037,254 and $4,624,726, respectively. For federal income tax purposes, the
tax basis of investments held at December 31, 1996 was $6,039,834. The aggregate
gross unrealized appreciation was $1,750,839, and the aggregate gross unrealized
depreciation for all investments was $39,455 as of December 31, 1996.
13
<PAGE>
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Utility Portfolio
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Trustees and Holders of Beneficial Interest of the Utility Portfolio:
We have audited the accompanying statement of assets and liabilities, including
the schedule of portfolio investments, of the Utility Portfolio as of December
31, 1996, and the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period then
ended and the financial highlights for each of the four years in the period then
ended and for the period August 3, 1992 (commencement of operations) to December
31, 1992. 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 December 31,
1996, by correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Utility Portfolio as of December 31, 1996, the results of its operations, the
changes in its net assets and the financial highlights for the periods referred
to above, in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Kansas City, Missouri
February 3, 1997
14
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15
<PAGE>
BT INVESTMENT FUNDS
Utility Fund
For shareholder account information and current price and yield quotations,
shareholders may call their relationship manager or servicing agent.
Prospectuses containing more extensive information regarding the BT Investment
Funds may be obtained by calling or writing to DST Systems, Inc. or Edgewood
Services, Inc., the primary Servicing Agent and Distributor, respectively, of BT
Investment Funds:
BT Investment Funds
DST Systems, Inc.
210 West 10th St.
Kansas City, MO 64105
BT Investment Funds
Edgewood Securities, Inc.
Clearing Operations
P.O. Box 897
Pittsburgh, PA 15230-0897
You may write to the Utility Fund
at the following address:
BT Investment Funds
Clearing Operations
P.O. Box 897
Pittsburgh, PA 15230-0897
Cusip #055922884
STA468200
