<PAGE>
- BT INVESTMENT FUNDS -
--------------------------
CAPITAL APPRECIATION FUND
--------------------------
ANNUAL REPORT
---------------
SEPTEMBER-1997
<PAGE>
- --------------------------------------------------------------------------------
CAPITAL APPRECIATION FUND
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
LETTER TO SHAREHOLDERS. . . . . . . . . . . . . . . . . . . . . . . . . . . .3
CAPITAL APPRECIATION FUND
Statement of Assets and Liabilities. . . . . . . . . . . . . . . . . . . .5
Statement of Operations. . . . . . . . . . . . . . . . . . . . . . . . . .5
Statement of Changes in Net Assets . . . . . . . . . . . . . . . . . . . .6
Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . . . .7
Report of Independent Accountants. . . . . . . . . . . . . . . . . . . . .8
CAPITAL APPRECIATION PORTFOLIO
Schedule of Portfolio Investments. . . . . . . . . . . . . . . . . . . . .9
Statement of Assets and Liabilities. . . . . . . . . . . . . . . . . . . 11
Statement of Operations. . . . . . . . . . . . . . . . . . . . . . . . . 11
Statement of Changes in Net Assets . . . . . . . . . . . . . . . . . . . 12
Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . . . 13
Report of Independent Accountants. . . . . . . . . . . . . . . . . . . . 14
2
<PAGE>
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CAPITAL APPRECIATION FUND
LETTER TO SHAREHOLDERS
- --------------------------------------------------------------------------------
We are pleased to present you with this annual report for the BT Investment
Capital Appreciation Fund, providing a review of the market, the portfolio, and
our outlook, as well as a complete financial summary of the Fund's operations
and a listing of the Portfolio's holdings.
The BT Investment Capital Appreciation Fund (the "Fund") had a total return of
14.64%* for the twelve months ended September 30, 1997, as compared to 39.10%
for the S&P MidCap 400 Index** and 26.88% for the Lipper Growth Average+. Since
its inception on March 9, 1993, the Fund delivered a total return of 116.77%
cumulatively, or 18.48% annualized, as of September 30, 1997.
MARKET ACTIVITY
Overall, the last fiscal year has been disappointing from a performance
perspective, due to the severe underperformance of the mid capitalization growth
stocks in the first part of the year. The first seven months ended April 30,
1997 may best be characterized by a "glass half empty" point of view in the
midcap growth arena, as investors' concerns regarding inflation, corporate
earnings, the direction of interest rates, and market valuation levels
dominated. As a result, investors tended to focus more on large capitalization
and more value-oriented companies. These stocks, then, significantly
outperformed the midcap growth stocks during these seven months. What finally
changed was the Federal Reserve Board's rate hike on March 25, 1997. This set
the stage for what turned into a dramatic turnaround in midcap growth stocks.
There are three major factors that came together at this time, which led to this
rebound.
- --------------------------------------------------------------------------------
OBJECTIVE
Seeks capital growth over the long term through investment in growth-oriented
medium-sized companies that show growth potential. Current income is a secondary
goal.++
- --------------------------------------------------------------------------------
First, relative valuations in the midcap market had reached their lowest levels
since 1991 as compared to large caps, due to severe and somewhat indiscriminate
selling. Many very good growth companies were trading at significant discounts
to the levels of six to nine months previous with no change in business
fundamentals. Second, earnings reports from the first calendar quarter showed
that growth rates were still relatively robust and actually started to
accelerate relative to the large caps after over a year of underperformance.
Third, there was a significant shift in investor sentiment, presaged by the
Federal Reserve Board's rate hike in March and the weaker than expected economic
reports in April, which gave investors confidence that the Fed would not raise
rates again.
- ------------------------------------------------------------------------------
INVESTMENT INSTRUMENTS
Generally growth-oriented stocks of medium-sized U.S. corporations and, to a
lesser extent, foreign corporations.
- ------------------------------------------------------------------------------
The combination of reasonable valuation levels, improving relative earnings
growth, and positive investor sentiment led to a strong rebound in the midcap
stocks. Overall, for the period from May through September 1997, midcap stocks
outperformed the large cap segment of the market, though they lagged the small
cap sector somewhat. It is important to note, however, that the growth stocks
within the midcap sector lagged the midcap stocks in general, making it
difficult for growth investors to outperform the benchmark during this period.
INVESTMENT REVIEW
While the Fund's relative performance was hampered by its investment style
during the first seven months of the fiscal year, the growth style recovered
enough to perform in line during the midcap rebound of the last five months. In
fact, the Fund outperformed the midcap stocks in general during the rebound,
even though the average midcap growth stock did not outperform the average
midcap stock. Relative sector positioning and effective stock picking also
added value during the last five months of the year. More specifically, the
Fund benefited from overweight positions in technology, energy, communications
services, and consumer discretionary stocks as well as from underweight
positions in utilities and basic industries. To a certain degree, performance
was mitigated by an underweight position in the strong performing sector of
financials.
- ---------------------------------------------------------------------------
TEN LARGEST STOCK HOLDINGS
- ---------------------------------------------------------------------------
McKesson Corp. Cooper Cameron Corp.
- ---------------------------------------------------------------------------
Ace Ltd. Elan Corp., Plc., ADR
- ---------------------------------------------------------------------------
U.S. Filter Corp. Starwood Lodging Trust
- ---------------------------------------------------------------------------
ASM Lithography Holding NV General Cable Corp.
- ---------------------------------------------------------------------------
Compuware Corp. Mylan Laboratories
- ---------------------------------------------------------------------------
MANAGER OUTLOOK
That midcap growth stocks have exhibited fairly strong performance over the last
five months is very encouraging. We believe that these stocks are well
positioned for continued good performance as we head into 1998. The three macro
factors remain in place--reasonable valuations, good relative earnings growth,
and positive investor sentiment--and also, midcap growth stocks are now more
relatively attractive because they have not rebounded as much as either the
small cap growth stocks or the large caps. The Fund has performed well during
the rebound since May, and we believe that it continues to be well positioned in
the midcap growth names for the near future.
We are also optimistic about the midcap growth stocks over the longer term.
Although there can be periods of underperformance as we experienced this year,
it has been shown that not only do midcap growth stocks tend to have higher
earnings growth rates than large caps, but they also tend to outperform the
large caps over the long term. In addition, it has been shown that our
investment style and disciplined process have enabled the Fund to outperform the
midcap
- ---------------
* 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 S&P MiidCap 400 Index is an unmanaged, capitalization-weighted index
that measures the performance of the mid-range of the U.S. stock market.
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.
++ Midsized company stocks are more volatile and involve more risk to
principal than large company stocks.
3
<PAGE>
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CAPITAL APPRECIATION FUND
LETTER TO SHAREHOLDERS
- --------------------------------------------------------------------------------
DIVERSIFICATION OF PORTFOLIO INVESTMENTS
By Theme as of September 30, 1997
(PERCENTAGES ARE BASED ON MARKET VALUE)
[CHART]
Stores of Value 5%
New Healthcare Paradigm 6%
The Ubiquitous Semiconductor 8%
Life Sciences Revolution 8%
Our Strengthening Financial Structure 10%
Telecommunications 10%
Move to Outsourcing 5%
Interactive Media 5%
Environmental Crisis 5%
New Consumer 4%
Cash 4%
Other 16%+
Energizing the Globe 14%
- ---------------
+ Includes themes with weightings of less than 3.5%.
stocks in general over the long term, and thus we have strictly adhered to our
growth style and investment process. This hindered performance during the the
painful period, but it has been rewarding during the rebound.
We continue to use extensive fundamental research, as well as our thematic
approach and screening process, to identify attractive investment opportunities
in unrecognized growth companies and sectors. We remain focused on companies
that have strong, consistent revenue and earnings growth, which are selling at
compelling valuations relative to their growth rates. We have confidence that
over the long term, these names will be rewarded for their sound fundamentals.
Finally, we continue to adhere to our sell discipline to help mitigate risk and
to use the volatility of the marketplace to our investors' advantage by
initiating or adding to positions on weakness.
We are disappointed with the Fund's performance over the last year, but we also
believe that the causes are both explainable and short term in nature. We are
encouraged regarding the outlook, because the Fund has shown excellent
performance during the rebound and is well positioned for what we believe will
be a continually improving environment for midcap growth stock investing.
We will continue to monitor economic conditions and their effect on financial
markets, as we seek capital growth over the long term.
We value your ongoing support of the BT Investment Capital Appreciation Fund and
look forward to serving your investment needs in the years ahead.
/s/ Anthony Takazawa
Anthony Takazawa
Portfolio Manager of the
CAPITAL APPRECIATION PORTFOLIO
September 30, 1997
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CAPITAL APPRECIATION FUND
PERFORMANCE COMPARISON
- ------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE CAPITAL
APPRECIATION FUND AND THE S&P 400 INDEX SINCE MARCH 31, 1993.
- ------------------------------------------------------------------------------
TOTAL RETURN FOR THE PERIOD
ENDED SEPTEMBER 30, 1997
One year Since 3/9/93*
-------- -------------
14.64% 18.48%**
* The Fund's inception date.
** Annualized.
Investment return and principal value may fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
- ------------------------------------------------------------------------------
[GRAPH]
BT Investment Capital
Appreciation Fund - $21,655 S&P 400 Index - $21,779
--------------------------- -----------------------
Mar-93 10000 10000
Jun-93 10519 10233
Sep-93 11838 10747
Dec-93 11708 11034
Mar-94 11409 10614
Jun-94 10699 10227
Sep-94 11728 10920
Dec-94 12088 10638
Mar-95 12857 11498
Jun-95 14266 12513
Sep-95 16813 13734
Dec-95 16612 13930
Mar-96 16786 14788
Jun-96 18070 15214
Sep-96 18890 15657
Dec-96 18055 16605
Mar-97 15919 16358
Jun-97 18262 18770
Sep-97 21655 21779
Past performance is not indicative of future performance.
4
<PAGE>
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CAPITAL APPRECIATION FUND
STATEMENT OF ASSETS AND LIABILITIES SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investment in Capital Appreciation Portfolio, at Value . . . . . . . . . . . . . . . . . . . . . . . . . . $ 48,971,758
Receivable for Shares of Beneficial Interest Subscribed. . . . . . . . . . . . . . . . . . . . . . . . . . 65,081
Prepaid Expenses and Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,303
------------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,042,142
------------
------------
LIABILITIES
Due to Bankers Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,039
Accrued Expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,713
------------
Total Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,752
------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 49,002,390
------------
------------
COMPOSITION OF NET ASSETS
Paid-in Capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 30,741,130
Accumulated Net Realized Gain from Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,269,807
------------
Net Unrealized Appreciation on Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,991,453
------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 49,002,390
------------
------------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE (net assets divided by shares outstanding). . . . . $ 15.72
------------
------------
SHARES OUTSTANDING ($0.001 par value per share, unlimited number of shares of beneficial
interest authorized) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,117,530
------------
------------
</TABLE>
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STATEMENT OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 1997
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME
Loss Allocated from Capital Appreciation Portfolio, net. . . . . . . . . . . . . . . . . . . . . . . . . . $ (61,421)
------------
EXPENSES
Administration and Services Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 338,831
Registration Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,409
Printing and Shareholder Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,500
Professional Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,495
Trustees Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,900
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,590
Total Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 380,725
Less Expenses Absorbed by Bankers Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (41,894)
------------
Net Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 338,831
------------
NET INVESTMENT LOSS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (400,252)
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net Realized Gain from Investment Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,741,388
Net Change in Unrealized Appreciation on Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,951,199)
------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,790,189
------------
NET INCREASE IN NET ASSETS FROM OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,389,937
------------
------------
</TABLE>
See Notes to Financial Statements on Page 7
5
<PAGE>
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CAPITAL APPRECIATION 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 Loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (400,252) $ (410,072)
Net Realized Gain from Investment Transactions . . . . . . . . . . . . . . . 9,741,388 6,405,510
Net Change in Unrealized Appreciation on Investments . . . . . . . . . . . . (4,951,199) 1,389,272
------------ ------------
Net Increase in Net Assets from Operations . . . . . . . . . . . . . . . . . . 4,389,937 7,384,710
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS
Net Realized Gain from Investment Transactions . . . . . . . . . . . . . . . (11,135,789) (6,765,953)
------------ ------------
CAPITAL TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Sales of Shares. . . . . . . . . . . . . . . . . . . . . . . . 18,537,543 25,355,460
Capital Reinvestments. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,064,050 3,593,138
Cost of Shares Redeemed. . . . . . . . . . . . . . . . . . . . . . . . . . . (36,238,151) (19,562,155)
------------ ------------
NET INCREASE (DECREASE) FROM CAPITAL TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11,636,558) 9,386,443
------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . (18,382,410) 10,005,200
NET ASSETS
Beginning of Year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67,384,800 57,379,600
------------ ------------
End of Year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 49,002,390 $ 67,384,800
------------ ------------
------------ ------------
</TABLE>
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FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
Contained below are selected data for a share outstanding, total investment
return, other supplemental data and ratios to average net assets for the periods
indicated for the Capital Appreciation Fund.
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE FOR THE FOR THE PERIOD FOR THE MARCH 9, 1993
YEAR ENDED YEAR ENDED JANUARY 1, 1995 YEAR ENDED (COMMENCEMENT
SEPTEMBER 30, SEPTEMBER 30, TO SEPTEMBER 30, DECEMBER 31, OF OPERATIONS) TO
1997 1996 1995** 1994 DECEMBER 31, 1993
------------ ------------ --------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . $ 16.79 $ 16.83 $ 12.10 $ 11.72 $ 10.00
-------- -------- -------- -------- --------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
Net Investment Loss. . . . . . . . . . . . . . . . (0.13) (0.10) (0.07) (0.04) (0.01)
Net Realized and Unrealized Gain from Investment
Transactions. . . . . . . . . . . . . . . . . . 2.13 1.89 4.80 0.42 1.73
-------- -------- -------- -------- --------
Total Income from Investment Operations. . . . . . . 2.00 1.79 4.73 0.38 1.72
-------- -------- -------- -------- --------
DISTRIBUTIONS TO SHAREHOLDERS
Net Realized Gain from Investment Transactions . . (3.07) (1.83) -- -- --
-------- -------- -------- -------- --------
Net Asset Value, End of Period . . . . . . . . . . $ 15.72 $ 16.79 $ 16.83 $ 12.10 $ 11.72
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL INVESTMENT RETURN. . . . . . . . . . . . . . . 14.64% 12.35% 39.09% 3.24% 21.54%*
SUPPLEMENTAL DATA AND RATIOS:
Net Assets, End of Period (000s omitted) . . . . . $ 49,002 $ 67,385 $ 57,380 $ 42,737 $ 17,573
Ratios to Average Net Assets:
Net Investment Loss . . . . . . . . . . . . . . (0.77)% (0.66)% (0.65)%* (0.57)% (0.23)%*
Expenses, Including Expenses of the Capital
Appreciation Portfolio . . . . . . . . . . . 1.25% 1.25% 1.25%* 1.25% 1.25%*
Decrease Reflected in Above Expense Ratio Due
to Absorption of Expenses by Bankers Trust . 0.29% 0.26% 0.32%* 0.54% 0.74%*
</TABLE>
- ---------------
* Annualized
** The Board of Trustees approved the change of the fiscal year end from
December 31 to September 30.
See Notes to Financial Statements on Page 7
6
<PAGE>
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CAPITAL APPRECIATION 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 Capital Appreciation Fund (the "Fund") is
one of the funds offered to investors by the Trust. The Fund commenced
operations and began offering shares of beneficial interest on March 9, 1993.
The Fund invests substantially all of its assets in the Capital Appreciation
Portfolio (the "Portfolio"). The Portfolio is an open-end management investment
company registered under the Act. The Fund seeks to achieve its investment
objective by investing all of its investable assets in the Portfolio. The value
of such investment in the Portfolio reflects the Fund's proportionate interest
in the net assets of the Portfolio. At September 30, 1997, the Fund's investment
was approximately 100% of the Portfolio.
The financial statements of the Portfolio, including the Schedule of Portfolio
Investments, are contained elsewhere in this report.
B. INVESTMENT INCOME
The Fund earns income, net of expenses, daily on its investment in the Capital
Appreciation Portfolio. All of the net investment income (loss) and realized
and unrealized gains and losses from the security transactions of the Portfolio
are allocated pro rata among the investors in the Portfolio at the time of such
determination.
C. DIVIDENDS
It is the Fund's policy to declare and distribute dividends quarterly to
shareholders from net investment income, if any. Dividends and distributions
payable to shareholders are recorded by the Fund on the ex-dividend date.
Distributions of net realized short-term and long-term capital gains, if any,
earned by the Fund will be made annually to the extent they are not offset by
any capital loss carryforwards.
D. FEDERAL INCOME TAXES
It is the Fund's policy to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and 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 year ended September 30, 1997, $5,339,701 of net
realized loss was reclassified to paid-in-capital, $400,252 was reclassified
from undistributed net investment loss to net realized gain and $635,692 was
reclassified from unrealized depreciation to net realized gain.
E. OTHER
The Trust accounts separately for the assets, liabilities, and operations of the
Fund. Expenses directly attributable to the Fund are charged to that Fund, while
expenses which are attributable to all of the Trust's funds are allocated among
them.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts in the financial statements. Actual results could
differ from those estimates.
NOTE 2--FEES AND TRANSACTIONS WITH AFFILIATES
The Fund has entered into an Administration and Services Agreement with Bankers
Trust Company ("Bankers Trust"). Under this Administration and Services
Agreement, Bankers Trust provides administrative, custody, transfer agency and
shareholder services to the Fund in return for a fee computed daily and paid
monthly at an annual rate of 0.65 of 1% of the Fund's average daily net assets.
For the year ended September 30, 1997, this fee aggregated $338,831.
The Trust entered into a Distribution Agreement with Edgewood Services, Inc.
("Edgewood"). Under the Distribution Agreement with the Trust, pursuant to Rule
12b-1 of the Act, Edgewood may seek reimbursement, at an annual rate not
exceeding 0.20 of 1% of the Fund's average daily net assets, for expenses
incurred in connection with any activities primarily intended to result in the
sale of the Fund's shares. For the year ended September 30, 1997, there were no
reimbursable expenses incurred under this agreement.
Bankers Trust has voluntarily undertaken to waive and reimburse expenses of the
Fund, to the extent necessary, to limit all expenses to 0.65 of 1% of the
average daily net assets of the Fund, excluding expenses of the Portfolio and
1.25 of 1% of the average daily net assets of the Fund, including expenses of
the Portfolio. For the year ended September 30, 1997, expenses of the Fund have
been reduced by $41,894.
Certain trustees and officers of the Fund are also directors, officers and/or
employees of Edgewood. None of the trustees so affiliated received compensation
for services as trustee of the Fund. Similarly, none of the Fund's officers
received compensation from the Fund.
NOTE 3--SHARES OF BENEFICIAL INTEREST
At September 30, 1997, there were an unlimited number of shares of beneficial
interest authorized. Transactions in shares of beneficial interest were as
follows:
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------------------ ------------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------ ------------------------------
<S> <C> <C> <C> <C>
Sold 1,304,558 $18,537,543 1,597,362 $25,355,460
Reinvested 425,141 6,064,050 240,689 3,593,138
Redeemed (2,625,585) (36,238,151) (1,233,122) (19,562,155)
---------- ------------ ---------- -----------
Net Increase (Decrease) (895,886) $(11,636,558) 604,929 $9,386,443
---------- ------------ ---------- -----------
---------- ------------ ---------- -----------
</TABLE>
7
<PAGE>
- --------------------------------------------------------------------------------
CAPITAL APPRECIATION FUND
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Trustees and Shareholders of the BT Investment Funds:
We have audited the accompanying statement of assets and liabilities of the
Capital Appreciation 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, the year ended
December 31, 1994 and the period March 9, 1993 (commencement of operations) to
December 31, 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
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
September 30, 1997 by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Capital Appreciation Fund of BT Investment Funds as of September 30, 1997, the
results of its operations for the year then ended, the changes in its net assets
for each of the two years in the period then ended and the financial highlights
for the periods referred to above, in conformity with generally accepted
accounting principles.
Coopers & Lybrand L.L.P.
Kansas City, Missouri
November 5, 1997
8
<PAGE>
- --------------------------------------------------------------------------------
CAPITAL APPRECIATION PORTFOLIO
SCHEDULE OF PORTFOLIO INVESTMENTS SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
------ ----------- -----
<S> <S> <S>
COMMON STOCKS - 94.79%
AMERICA'S CHANGING LEISURE TIME - 2.76%
12,600 Royal Caribbean Cruises, Ltd. . . . . . . . . . . $551,250
13,900 Starwood Lodging Trust. . . . . . . . . . . . . . 798,381
---------
1,349,631
---------
AMERICA'S INDUSTRIAL RENAISSANCE - 1.84%
9,700 BE Aerospace, Inc. (a). . . . . . . . . . . . . . 349,200
12,452 Sunbeam Corporation, Inc. . . . . . . . . . . . . 552,557
---------
901,757
---------
CLIENT-SERVER COMPUTING - 4.66%
13,300 Autodesk, Inc.. . . . . . . . . . . . . . . . . . 603,487
13,828 Compuware Corp. (a) . . . . . . . . . . . . . . . 836,594
24,600 Platinum Technology, Inc. (a) . . . . . . . . . . 528,900
8,200 Quantum Corp. (a) . . . . . . . . . . . . . . . . 314,162
---------
2,283,143
---------
CONSOLIDATING AMERICA - 3.08%
8,000 Clear Channel Communications, Inc. (a). . . . . . 519,000
10,700 MSC Industrial Direct (a) . . . . . . . . . . . . 492,200
18,849 Outdoor Systems, Inc. (a) . . . . . . . . . . . . 494,786
---------
1,505,986
---------
ENERGIZING THE GLOBE - 12.33%
9,800 AES Corp. (a) . . . . . . . . . . . . . . . . . . 428,750
8,634 BJ Services Co. (a) . . . . . . . . . . . . . . . 641,075
11,424 Cooper Cameron Corp. (a). . . . . . . . . . . . . 820,386
13,800 ENSCO International, Inc. . . . . . . . . . . . . 544,238
14,100 Falcon Drilling Company, Inc. (a) . . . . . . . . 497,906
17,800 Global Industries Ltd. (a). . . . . . . . . . . . 709,775
14,300 Nabors Industries, Inc. (a) . . . . . . . . . . . 556,806
16,800 Noble Drilling Corp. (a). . . . . . . . . . . . . 541,800
8,400 Nuevo Energy Co. (a). . . . . . . . . . . . . . . 402,150
38,200 Santa Fe Energy Resources, Inc. (a) . . . . . . . 477,500
11,400 United Meridian Corp. (a) . . . . . . . . . . . . 418,950
---------
6,039,336
---------
ENVIRONMENTAL CRISIS - 4.63%
21,700 Allied Waste Industries, Inc. (a) . . . . . . . . 415,013
8,900 Culligan Water Technologies, Inc. (a) . . . . . . 409,400
11,622 USA Waste Services, Inc. (a). . . . . . . . . . . 463,427
22,755 U.S. Filter Corp. (a) . . . . . . . . . . . . . . 979,887
---------
2,267,727
---------
FLOURISHING IN THE MANAGED CARE
ENVIRONMENT - 1.72%
10,600 Concentra Managed Care, Inc. (a). . . . . . . . . 374,313
21,900 MedPartners, Inc. (a) . . . . . . . . . . . . . . 469,481
---------
843,794
---------
INTERACTIVE MEDIA - 2.77%
13,500 Electronic Arts, Inc. (a) . . . . . . . . . . . . 521,437
27,500 Metromedia International Group, Inc. (a). . . . . 333,438
18,200 Snyder Communications, Inc. (a) . . . . . . . . . 500,500
---------
1,355,375
---------
LIFE ON THE NET - 2.82%
15,200 E*TRADE Group, Inc. (a) . . . . . . . . . . . . . 714,400
18,585 Sterling Commerce, Inc. (a) . . . . . . . . . . . 667,898
---------
1,382,298
---------
LIFE SCIENCES REVOLUTION - 8.49%
9,800 Agouron Pharmaceuticals, Inc. (a) . . . . . . . . $471,625
17,400 BioChem Pharma, Inc. (a). . . . . . . . . . . . . 548,100
6,400 Dura Pharmaceuticals, Inc. (a). . . . . . . . . . 279,200
15,982 Elan Corp., Plc., ADR (a) . . . . . . . . . . . . 800,099
8,600 Immunex Corp. (a) . . . . . . . . . . . . . . . . 578,350
33,600 Mylan Laboratories. . . . . . . . . . . . . . . . 753,900
2,800 Perkin-Elmer Corp.. . . . . . . . . . . . . . . . 204,575
8,700 Watson Pharmaceuticals, Inc. (a). . . . . . . . . 519,825
---------
4,155,674
---------
MANAGING THE INFORMATION AGE - 1.67%
15,100 Cambridge Technology Partners, Inc. (a) . . . . . 540,769
8,800 Keane, Inc. (a) . . . . . . . . . . . . . . . . . 279,400
---------
820,169
---------
MOVE TO OUTSOURCING - 3.87%
18,800 AccuStaff, Inc. (a) . . . . . . . . . . . . . . . 592,200
16,800 Coca-Cola Enterprises, Inc. . . . . . . . . . . . 452,550
11,100 Corporate Express, Inc. (a) . . . . . . . . . . . 234,488
13,788 Danka Business Systems, ADR . . . . . . . . . . . 613,566
---------
1,892,804
---------
NEW CONSUMER - 5.33%
10,672 Jones Apparel Group, Inc. (a) . . . . . . . . . . 576,288
6,900 Linens 'N Things, Inc. (a). . . . . . . . . . . . 234,169
10,300 Liz Claiborne, Inc. . . . . . . . . . . . . . . . 565,856
18,600 Polo Ralph Lauren Corp.-Cl. A (a) . . . . . . . . 487,087
5,700 Stage Stores, Inc. (a). . . . . . . . . . . . . . 245,813
16,400 TJX Companies, Inc. . . . . . . . . . . . . . . . 501,225
---------
2,610,438
---------
NEW HEALTHCARE PARADIGM - 6.33%
5,100 Arterial Vascular Engineering, Inc. (a) . . . . . 283,050
15,800 HBO & Co. . . . . . . . . . . . . . . . . . . . . 596,450
22,346 HEALTHSOUTH Corp. (a) . . . . . . . . . . . . . . 596,359
9,900 McKesson Corp.. . . . . . . . . . . . . . . . . . 1,009,181
13,900 Safeskin Corp. (a). . . . . . . . . . . . . . . . 616,813
---------
3,101,853
---------
OUR STRENGTHENING FINANCIAL STRUCTURE - 9.65%
10,500 Ace, Ltd. . . . . . . . . . . . . . . . . . . . . 987,000
17,800 Everest Reinsurance Holdings, Inc.. . . . . . . . 729,800
2,500 Finova Group, Inc.. . . . . . . . . . . . . . . . 236,562
13,400 Frontier Insurance Group, Inc.. . . . . . . . . . 509,200
23,100 HCC Insurance Holdings, Inc.. . . . . . . . . . . 613,594
4,500 Mercury General Corp. . . . . . . . . . . . . . . 393,750
13,900 Ocwen Financial Corp. (a) . . . . . . . . . . . . 585,538
9,600 Provident Companies, Inc. . . . . . . . . . . . . 671,400
---------
4,726,844
---------
RETURN TO HOME OWNERSHIP - 0.36%
9,400 Furniture Brands International, Inc. (a). . . . . 177,425
---------
SPECIAL SITUATIONS - 0.45%
7,700 Ispat International NV-Cl. A (a). . . . . . . . . 220,413
---------
STORES OF VALUE - 4.51%
22,316 Borders Group, Inc. (a) . . . . . . . . . . . . . 613,690
10,300 Brylane, Inc. (a) . . . . . . . . . . . . . . . . 472,513
12,637 Consolidated Stores Corp. (a) . . . . . . . . . . 529,174
17,375 Dollar General Corp.. . . . . . . . . . . . . . . 591,836
---------
2,207,213
---------
</TABLE>
9
<PAGE>
- --------------------------------------------------------------------------------
CAPITAL APPRECIATION PORTFOLIO
SCHEDULE OF PORTFOLIO INVESTMENTS SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
------ ----------- -----
<S> <S> <S>
TELECOMMUNICATIONS - 9.96%
6,400 Advanced Fibre Communications (a). . . . . . . . . . . $262,400
13,300 Brooks Fiber Properties, Inc. (a). . . . . . . . . . . 620,944
6,200 Ciena Corp. (a). . . . . . . . . . . . . . . . . . . . 307,094
9,500 Comverse Technology, Inc. (a). . . . . . . . . . . . . 501,125
13,300 DSC Communications Corp. (a) . . . . . . . . . . . . . 358,269
21,900 General Cable Corp. (a). . . . . . . . . . . . . . . . 777,450
15,123 McLeod, Inc.-Cl. A (a) . . . . . . . . . . . . . . . . 596,413
9,700 Newbridge Networks Corp. (a) . . . . . . . . . . . . . 580,787
7,200 Qwest Communications International, Inc. (a) . . . . . 332,100
12,101 Teleport Communications Group, Inc.-Cl. A (a). . . . . 543,032
---------
4,879,614
---------
THE UBUQUITOUS SEMICONDUCTOR - 7.56%
15,700 Analog Devices, Inc. (a) . . . . . . . . . . . . . . . 525,950
9,900 ASM Lithography Holding NV (a) . . . . . . . . . . . . 977,624
15,900 Cymer, Inc. (a). . . . . . . . . . . . . . . . . . . . 435,263
6,425 General Semiconductor, Inc. (a). . . . . . . . . . . . 82,722
7,600 KLA Instruments Corp. (a). . . . . . . . . . . . . . . 513,475
8,900 Lam Research Corp. (a) . . . . . . . . . . . . . . . . 413,850
12,400 PMC Sierra, Inc. (a) . . . . . . . . . . . . . . . . . 316,200
8,600 Xilinx, Inc. (a) . . . . . . . . . . . . . . . . . . . 435,375
---------
3,700,459
---------
TOTAL COMMON STOCKS (Cost $34,225,192). . . . . . . . . . . . . . . . . . 46,421,953
----------
PREFERRED STOCK CONVERTIBLE - 1.23%
ENERGIZING THE GLOBE - 1.23%
8,800 AES Trust I-Ser. A, 5.375%, 3/31/27
(Cost $440,000) . . . . . . . . . . . . . . . . . . . 600,600
----------
SHORT TERM INSTRUMENT - 3.56%
MUTUAL FUNDS - 3.56%
1,745,877 BT Institutional Cash Management Fund,
(Cost $1,745,877) . . . . . . . . . . . . . . . . . . $1,745,877
----------
TOTAL INVESTMENTS (Cost $36,411,069). . . . . . 99.58% 48,768,430
Assets in Excess of Other Liabilities . . . . . 0.42% 203,349
------- ----------
NET ASSETS. . . . . . . . . . . . . . . . . . .100.00% $48,971,779
------- ----------
------- ----------
</TABLE>
- --------------
(a) Non-Income Producing Security
The following abbreviation is used in portfolio descriptions:
ADR -- American Depository Receipt
See Notes to Financial Statements on Page 13
10
<PAGE>
- --------------------------------------------------------------------------------
CAPITAL APPRECIATION PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Investments, at Value (Cost of $36,411,069) . . . . . . . . $48,768,430
Receivable for Securities Sold. . . . . . . . . . . . . . . 1,086,560
Dividends and Interest Receivable and Other . . . . . . . . 16,458
-----------
Total Assets. . . . . . . . . . . . . . . . . . . . . . . . . . 49,871,448
-----------
LIABILITIES
Due to Bankers Trust. . . . . . . . . . . . . . . . . . . . 19,789
Due to Custodian. . . . . . . . . . . . . . . . . . . . . . 240,407
Payable for Securities Purchased. . . . . . . . . . . . . . 627,654
Accrued Expenses and Other. . . . . . . . . . . . . . . . . 11,819
-----------
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . 899,669
-----------
NET ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . $48,971,779
-----------
-----------
COMPOSITION OF NET ASSETS
Paid-in Capital. . . . . . . . . . . . . . . . . . . . . . $36,614,418
Net Unrealized Appreciation on Investments . . . . . . . . 12,357,361
-----------
NET ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . $48,971,779
-----------
-----------
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . $ 110,841
Interest. . . . . . . . . . . . . . . . . . . . . . . . . . 141,666
-----------
TOTAL INVESTMENT INCOME . . . . . . . . . . . . . . . . . . . . 252,507
EXPENSES
Advisory Fees . . . . . . . . . . . . . . . . . . . . . . . 340,261
Administration and Services Fees. . . . . . . . . . . . . . 52,348
Professional Fees . . . . . . . . . . . . . . . . . . . . . 26,500
Trustees Fees . . . . . . . . . . . . . . . . . . . . . . . 2,040
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . 2,337
-----------
Total Expenses. . . . . . . . . . . . . . . . . . . . . . . 423,486
Less Expenses Absorbed by Bankers Trust . . . . . . . . . . (109,433)
-----------
Net Expenses. . . . . . . . . . . . . . . . . . . . . . . 314,053
-----------
NET INVESTMENT LOSS . . . . . . . . . . . . . . . . . . . . . . (61,546)
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net Realized Gain from Investment Transactions. . . . . . 9,773,379
-----------
Net Change in Unrealized Appreciation on Investments. . . (2,669,027)
-----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS . . . . . . . . 7,104,352
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS. . . . . . . . . . . $ 7,042,806
-----------
-----------
</TABLE>
See Notes to Financial Statements on Page 13
11
<PAGE>
- --------------------------------------------------------------------------------
CAPITAL APPRECIATION PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------ ------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS
Net Investment Loss. . . . . . . . . . . . . . . . . . . $ (61,546) $ (25,530)
Net Realized Gain from Investment Transactions . . . . . 9,773,379 18,986,988
Net Change in Unrealized Appreciation on Investments . . (2,669,027) (17,719,598)
------------- -------------
Net Increase in Net Assets from Operations . . . . . . . . . 7,042,806 1,241,860
------------- -------------
CAPITAL TRANSACTIONS
Proceeds from Capital Invested . . . . . . . . . . . . . 24,591,506 110,885,692
Value of Capital Withdrawn . . . . . . . . . . . . . . . (51,048,028) (193,629,946)
------------- -------------
Net Decrease in Net Assets from Capital Transactions . . . . (26,456,522) (82,744,254)
------------- -------------
TOTAL DECREASE IN NET ASSETS . . . . . . . . . . . . . . . . (19,413,716) (81,502,394)
NET ASSETS
Beginning of Year. . . . . . . . . . . . . . . . . . . . . . 68,385,495 149,887,889
------------- -------------
End of Year. . . . . . . . . . . . . . . . . . . . . . . . . $ 48,971,779 $ 68,385,495
------------- -------------
------------- -------------
</TABLE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Contained below are selected supplemental data and ratios to average net assets
for the periods indicated for the Capital Appreciation Portfolio.
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE FOR THE FOR THE PERIOD FOR THE MARCH 9, 1993
YEAR ENDED YEAR ENDED JANUARY 1, 1995 YEAR ENDED (COMMENCEMENT
SEPTEMBER 30, SEPTEMBER 30, TO SEPTEMBER 30, DECEMBER 31, OF OPERATIONS) TO
1997 1996 1995+ 1994 DECEMBER 31, 1993
------------- ------------- ---------------- ------------ -----------------
<S> <C> <C> <C> <C> <C>
SUPPLEMENTAL DATA AND RATIOS:
Net Assets, End of Period (000s omitted). . . . $48,972 $68,385 $149,888 $73,634 $37,076
Ratios to Average Net Assets:
Net Investment Income (Loss). . . . . . . . . (0.12)% (0.01)% 0.01%* 0.08% 0.38%*
Expenses. . . . . . . . . . . . . . . . . . . 0.60% 0.60% 0.60%* 0.60% 0.60%*
Decrease Reflected in Above Expense Ratio Due
to Absorption of Expenses by Bankers Trust. 0.21% 0.17% 0.18%* 0.23% 0.41%*
Portfolio Turnover Rate . . . . . . . . . . . . 167% 271% 125% 157% 137%
Average Commission Per Share**. . . . . . . . . $0.0592 $0.0554
</TABLE>
+ The Board of Trustees approved the change of the fiscal year end from
December 31 to September 30.
* Annualized
** For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for security trades on
which commissions are charged.
See Notes to Financial Statements on Page 13
12
<PAGE>
- --------------------------------------------------------------------------------
CAPITAL APPRECIATION PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1--ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
A. ORGANIZATION
The Capital Appreciation Portfolio (the "Portfolio") is registered under the
Investment Company Act of 1940 (the "Act"), as amended, as an open-end
management investment company. The Portfolio was organized on October 28, 1992,
as an unincorporated trust under the laws of New York and commenced operations
on March 9, 1993. The Declaration of Trust permits the Board of Trustees (the
"Trustees") to issue beneficial interests in the Portfolio.
B. SECURITY VALUATION
The Portfolio's investments listed or traded on National Stock Exchanges or
other domestic or foreign exchanges are valued based on the closing price of a
security traded on that exchange prior to the time when the Portfolio assets are
valued. Short-term obligations with remaining maturities of 60 days or less are
valued at amortized cost. Other short-term debt securities are valued on a
mark-to-market basis until such time as they reach a remaining maturity of 60
days, whereupon they will be valued at amortized cost using their value on the
61st day. All other securities and other assets are valued at their fair value
as determined in good faith under procedures established by and under the
general supervision of the Trustees.
C. SECURITY TRANSACTIONS AND INVESTMENT INCOME
Security transactions are accounted for on a trade date basis. Dividend income
is recorded on the ex-dividend date. Interest income is recorded on the accrual
basis and includes amortization of premium and discount on investments. Realized
gains and losses from securities transactions are recorded on the identified
cost basis.
All of the net investment income and realized and unrealized gains and losses
from the securities transactions of the Portfolio are allocated pro rata among
the investors in the Portfolio at the time of such determination.
D. REPURCHASE AGREEMENTS
The Portfolio may enter into repurchase agreements with financial institutions
deemed to be creditworthy by the Portfolio's Investment Adviser, subject to the
seller's agreement to repurchase such securities at a mutually agreed upon
price. Securities purchased subject to repurchase agreements are deposited with
the Portfolio's custodian and pursuant to the terms of the repurchase agreement
must have an aggregate market value greater than or equal to the repurchase
price plus accrued interest at all times. If the value of the underlying
securities falls below the value of the repurchase price plus accrued interest,
the Portfolio will require the seller to deposit additional collateral by the
next business day. If the request for additional collateral is not met, or the
seller defaults on its repurchase obligation, the Portfolio maintains the right
to sell the underlying securities at market value and may claim any resulting
loss against the seller. However, in the event of default or bankruptcy by the
seller, realization and/or retention of the collateral may be subject to legal
proceedings.
E. FEDERAL INCOME TAXES
It is the Portfolio's policy to comply with the requirements of the Internal
Revenue Code. Therefore, no federal income tax provision is required.
F. OTHER
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts in the financial statements. Actual results could
differ from those estimates.
NOTE 2--FEES AND TRANSACTIONS WITH AFFILIATES
The Portfolio has entered into an Administration and Services Agreement with
Bankers Trust Company ("Bankers Trust"). Under this Administration and Services
Agreement, Bankers Trust provides administrative, custody, transfer agency and
shareholder services to the Portfolio in return for a fee computed daily and
paid monthly at an annual rate of 0.10 of 1% of the Portfolio's average daily
net assets. For the year ended September 30, 1997, this fee aggregated $52,348.
The Portfolio has entered into an Advisory Agreement with Bankers Trust. Under
this Advisory Agreement, Bankers Trust manages the Portfolio in accordance with
the Portfolio's investment objective and stated investment policies in return
for a fee computed daily and paid monthly at an annual rate of 0.65 of 1% of the
Portfolio's average daily net assets. For the year ended September 30, 1997,
this fee aggregated $340,261.
Bankers Trust has voluntarily undertaken to waive and reimburse expenses of the
Portfolio to the extent necessary, to limit all expenses to 0.60 of 1% of the
average daily net assets of the Portfolio. For the year ended September 30,
1997, expenses of the Portfolio have been reduced by $109,433.
Certain trustees and officers of the Portfolio are also directors, officers
and/or employees of Edgewood Services, Inc. None of the trustees so affiliated
received compensation for services as trustee of the Portfolio. Similarly, none
of the Portfolio's officers received compensation from the Portfolio.
For the year ended September 30, 1997, Capital Appreciation Portfolio paid
brokerage commissions of $174,242.
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
$87,443,044 and $110,371,019, respectively.
For federal income tax purposes, the tax basis of investments held at September
30, 1997, was $36,478,480. The aggregate gross unrealized appreciation for all
investments was $12,834,865 and the aggregate gross unrealized depreciation for
all investments was $544,915.
13
<PAGE>
- --------------------------------------------------------------------------------
CAPITAL APPRECIATION PORTFOLIO
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Trustees and Holders of Beneficial Interest of the Capital Appreciation
Portfolio:
We have audited the accompanying statement of assets and liabilities, including
the schedule of portfolio investments, of the Capital Appreciation 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, the year ended
December 31, 1994 and the period March 9, 1993 (commencement of operations) to
December 31, 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
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
September 30, 1997 by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Capital Appreciation 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 5, 1997
14
<PAGE>
This page intentionally left blank.
15
<PAGE>
BT INVESTMENT FUNDS
CAPITAL APPRECIATION FUND
INVESTMENT ADVISER OF THE PORTFOLIO AND ADMINISTRATOR
BANKERS TRUST COMPANY
130 Liberty Street
New York, NY 10006
DISTRIBUTOR
EDGEWOOD SERVICES, INC.
Clearing Operations
P.O. Box 897
Pittsburgh, PA 15230-0897
CUSTODIAN AND TRANSFER AGENT
BANKERS TRUST COMPANY
130 Liberty Street
New York, NY 10006
INDEPENDENT ACCOUNTANTS
COOPERS & LYBRAND L.L.P.
1100 Main Street, Suite 900
Kansas City, MO 64105
COUNSEL
WILLKIE FARR & GALLAGHER
153 East 53rd Street
New York, NY 10022
For information on how to invest, shareholder account information and current
price and yield information, please contact your relationship manager or the BT
Mutual Fund Service Center at (800) 730-1313.
STA465100 (11/97)
