o BT INVESTMENT FUNDS o
INTERNATIONAL EQUITY FUND
SEMI-ANNUAL REPORT
MARCH o 1998
<PAGE>
International Equity Fund
Table of Contents
Letter to Shareholders 3
International Equity Fund
Statement of Assets and Liabilities 7
Statement of Operations 7
Statements of Changes in Net Assets 8
Financial Highlights 9
Notes to Financial Statements 10
International Equity Portfolio
Statement of Net Assets 11
Statement of Operations 14
Statements of Changes in Net Assets 15
Financial Highlights 15
Notes to Financial Statements 16
The Fund is not insured by the FDIC and is not a deposit, obligation of or
guaranteed by Bankers Trust Company. The Fund is subject to investment risks,
including possible loss of principal amount invested.
2
<PAGE>
International Equity Fund
Letter to Shareholders
We are pleased to present you with this semi-annual report for the International
Equity Fund, providing a review of the market, the portfolio, and our outlook as
well as a complete financial summary of the Fund's operations and a listing of
the Portfolio's holdings.
Objective
Seeks long term capital appreciation from investments in foreign equity
securities or other securities with equity characteristics.+
The International Equity Fund (the "Fund") had a total return of 11.54%(1) for
the six months ended March 31, 1998, as compared to 5.73% for the Morgan Stanley
Capital International ("MSCI") EAFE Index(2) and 5.91% for the Lipper
International Equity Funds Average(3). Since its inception on August 4, 1992,
the Fund has delivered a total return of 175.32% cumulatively, or 19.62%
annualized, as of March 31, 1998. The Fund returned 34.90% for the twelve months
ended March 31, 1998. For the five years ended March 31, 1998, the Fund had an
annualized total return of 21.08%(1), as compared to 11.93% for the Morgan
Stanley Capital International ("MSCI") EAFE Index(2) and 13.28% for the Lipper
International Equity Funds Average(3).
The Fund reached two significant milestones during the reporting period.
Morningstar, the independent mutual fund research firm, awarded the BT
Investment International Equity Fund a five-star rating overall out of 722
international equity funds as of March 31, 1998. In addition Morningstar ranked
the Fund #1 in the diversified foreign stock fund universe out of 127 funds for
the three-year and five-year periods ending March 31, 1998, based upon its
consistent risk-adjusted returns.(4)
MARKET ACTIVITY
Investment Instruments
Equity securities of foreign issuers, consisting of common stock and other
securities with equity characteristics; the investments are diversified among
several regions.
Most of the world's developed markets outside of Asia soared to new highs during
the six months ended March 31, 1998, shaking off the initial gloom of Asia's
financial and economic malaise. After assessing the limited impact of Asian
weakness on earnings of firms elsewhere in the world, investor sentiment turned
sharply positive. However, concerns were reignited in Japan, where the
combination of softer exports to the region and a further weakening in the
domestic economy has likely pushed the nation into recession.
A distant memory is the concern of a year ago that the U.S. Federal Reserve
Board would engage in a series of interest rate hikes to quell nascent inflation
growth. It was believed by most that this would not only spell the end of the
historic bull market in U.S. stocks but would derail equity performance abroad.
In fact, non-inflationary economic expansion continued in the U.S., and Asia's
weakness may even have provided an additional deflationary influence, with
excess capacity and lower import prices deferring Fed intervention for the time
being.
Investor focus turned to Europe, where attractive valuations, lower interest
rates, and renewed economic growth pushed markets to record levels. This
backdrop, along with a trend in retirement planning away from governmental
paternalism and toward individual self-reliance, helped to bolster an "equity
culture" similar to that of the U.S. and U.K. The anticipated success of
European Economic and Monetary Union (EMU) further contributed to a dramatic
regional re-rating. The recent recommendation by the European Monetary Institute
and the German Bundesbank that EMU should proceed as scheduled in January 1999
and that all eleven candidates should be approved was an important landmark.
Europe
The EMU-led revolution in Europe contributed to an unprecedented shift in
economic power. Anticipation that the member nations will comprise a formidable
bloc, joined together by a single currency and interest rate regime, brought
many first time domestic and foreign investors to the region's markets. Europe
has also attracted new fund flows from investors looking to diversify North
American exposure, from speculative emerging markets, and, most significantly,
from domestic investors seeking growth that fixed income markets have not
historically delivered. Particular beneficiaries were the peripheral
markets--most notably Italy, Spain, Portugal and Ireland--because they offer
attractive valuations and are benefiting the most from interest rate
convergence. Italy's fortunes also improved considerably, as confidence grew
that it would join EMU on schedule. Portugal entered MSCI EAFE in December,
attracting further interest from global investors.
Ten Largest Stock Holdings
Credito Italiano Hagemeyer Nv
Banco Popular Espanol Fomento De Construccione
Telecom Italia Spa Telecel Communications
Newcourt Credit Group Renault Sa
Soc Generale D'enterpris Banque National De Paris
This tremendous influx of new capital, which began more than one year ago,
propelled Europe to the lead of world equity market performance. In fact, most
European bourses outperformed the U.S. market by a wide margin during the six
months ending March 31, 1998. Europe delivered a 23.2% gain in local currencies
and 20.6%
(1) Performance quoted represents past performance and is not a guarantee 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.
(2) Indexes are unmanaged, and investments cannot be made in an index. The EAFE
Index is comprised of major non-U.S. stock markets.
(3) 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.
(4) Morningstar ratings reflect historical risk-adjusted performance. Ratings
are calculated from the funds' 3- and 5-year average annual returns in
excess of the 90-day Treasury bill returns with appropriate fee adjustments,
and a risk factor that reflects fund performance below 90-day T-bill
returns. The Fund received 5 stars for both the 3- and 5-year periods and
was rated among 722 and 311 funds, respectively. The top 10% of funds in the
rating universe receive 5 stars. Rated by average historical Morningstar
rating. The rating finds the mean (average) of every rated month of a fund's
history, thus revealing its historical relative performance consistency.
+ Foreign investing involves special risks, including currency risk, increased
volatility of foreign securities, and differences in auditing and other
financial standards.
3
<PAGE>
International Equity Fund
Letter to Shareholders (continued)
in U.S. dollars during the period, outpacing the still remarkable 17.2%
performance of U.S. equities and the lackluster 5.7% rise of the MSCI EAFE.
Peripheral markets generated stellar gains, with Italy, Portugal and Spain the
top performers. France led the core markets. The United Kingdom and Germany,
despite good absolute numbers, underperformed the region. The impact of Asia on
the Nordic region produced the three poorest outcomes in Europe over the period,
specifically Norway, which particularly felt the collapse in oil prices, and
Sweden and Finland, which felt the effects of selloffs in capital equipment and
commodity stocks.
Asia
The Japanese market continued to whipsaw unwary investors during the semi-annual
period. Equity holders heavily sold down the market in November, responding to
poor half year results and expectations that worse would follow. Leaks of
government efforts to stimulate the economy initially led to a sharp recovery in
January, but as the details began to unravel, investors fled to markets with
fewer political and economic risks. Compounded by yen weakness, Japan finished
the semi-annual period with a negative 18.0% return in U.S. dollars.
The crisis in Asia spread further northward by the end of 1997, devastating many
of the emerging markets in the region. More specifically, after Taiwan
depreciated its currency by 10% for competitive reasons last October, investors
anticipated that Hong Kong would abandon its U.S. dollar peg, thereby initiating
another round of regional equity and currency market declines. The Hong Kong
market retreated, as prospects for slower growth led investors away. The
combination of sharply higher interest rates and plummeting currencies proved to
be too challenging for Indonesia and South Korea. Both became recipients of
International Monetary Fund bailout packages. In late December, fears of debt
moratoria weighed heavily on the markets. However, disaster was averted when
Korea obtained debt rollovers and then restructured its banks' short-term
foreign debt in late January. This successful debt restructuring was the primary
catalyst for the rebound in regional equities and currencies during the first
calendar quarter of 1998.
Other Markets
Canada, a non-EAFE market, beat the Index for the period with a local market
gain of 11.9% and a U.S. dollar return of 8.8%. Consolidation in the banking
industry and a slower growth rate, which quelled fears of inflation, bolstered
this equity market despite a currency driven down by depressed commodity prices.
The Asian contagion spread to Latin America and Russia, down 10.5% and 28.7% in
U.S. dollars, respectively. Bond spreads and equity risk premia widened across
the board. Although the Latin markets responded to the Asian crisis with
proactive policies and are in better economic shape, weak global commodity
prices and higher interest rates took a toll on fundamentals, since many
regional economies are dependent upon commodity and oil revenues. Consequently,
countries like Mexico, Chile, Columbia and Venezuela were compelled to cut
spending and to hike interest rates to support their currencies. Although the
market was most concerned about a potential devaluation of the Brazilian
currency given that nation's large current account and budget deficits, it
regained investor confidence with its policy initiatives and larger than
expected interest rates cuts. Thus, Brazil was the region's best performer, up
7.7%, during the first quarter of 1998.
Russia, last year's star performer, was adversely affected by sagging oil
prices, rising interest rates, and continuing delays on the reform front.
Although South Africa is also dependent on commodities, this market was
supported by the financial sector, undergoing consolidation and responding
favorably to declining interest rates.
INVESTMENT REVIEW
We continued to extend the Fund's exposure to Europe, favoring the continent and
its peripheral markets while adding to its holdings in the United Kingdom. Most
significantly, we increased our overweighting in France from 14% last September
to just over 17%, reflecting our confidence that France stands to deliver the
strongest performance within Europe's core markets. More importantly, it is a
reflection of the attractiveness of French companies with strong managements,
driven by and benefiting from restructuring, industry consolidations, and a
broadening economic recovery. We also increased our already overweight position
in Italy from 7% to 10%. Our exposure to Spain and Portugal has grown due to
strong price appreciation.
As for the sectors within these European countries' markets, we established
positions in regional financial services companies and benefited greatly from
their strong performance over the period. These include Bayerische Vereinsbank,
whose stock is reflecting expected benefits from its merger with Bayerische
Hypobank; insurance giant Allianz AG in Germany, which will likely play a major
role in the reshaping of the sector throughout Europe; Banca di Roma in Italy
and Argentaria in Spain, key candidates to benefit from the consolidations in
their respective markets; and Erste Bank, a dominant player in Austria. We also
brought Swiss banks UBS and Credit Suisse into the portfolio. We expect UBS, in
the process of combining with SBC, to develop significant value through merger
synergies, and we believe Credit Suisse will be the beneficiary of the resulting
reduced capacity. We sold our position in Swedish bank Nordbanken AB in the wake
of its merger with Finland-based Merita Oy.
Two defensive consumer-related growth stocks were added upon their initial
public offerings: detergent maker Benckiser and animal feed leader Nutreco
Holding, both in the Netherlands. We also purchased Hagemeyer, a Dutch
distributor and trading company.
The portfolio broadened its exposure to the fast-growing telecommunications and
telecom equipment companies, which are benefiting from the global industry
revolution taking place. We purchased Global TeleSystems Group, a rapidly
growing supplier of capacity to telecom services companies in Europe and Russia,
French telecom equipment maker Alcatel Alsthom, German telecom company
Mannesmann, Telecom Corp. of New Zealand, Indonesia's PT Telekomunikasi, and
Philippine Long Distance Telephone Company.
Positions in "growth" utilities, i.e. companies redefining the concept of a
captive service provider and becoming increasingly profitable due to cost
cutting and entrepreneurial managements, were brought into the portfolio. These
include Spain's largest electricity company Endesa, with a growing presence in
Latin America, Britain's major gas transporter BG Plc., electricity generator
British Energy, Germany's multi-utility Viag AG, and Italian gas and water
distributor Italgas.
4
<PAGE>
International Equity Fund
Letter to Shareholders (continued)
Diversification of Portfolio Investments
By Sector as of March 31, 1998
(percentages are based on market value)
[PIE CHART APPEARS HERE]
Italy 10%
Germany 8%
Japan 4%
United Kingdom 9%
Short Term Instruments (Treasury Bills & other items) 8%
Netherlands 6%
Switzerland 5%
Portugal 6%
Spain 7%
Other 20%+
France 17%
+ Includes countries with weightings of less than 4%.
We decreased the Fund's exposure to Japan but continued to add inexpensive
out-of the-money call options on the Nikkei to capture any upward movement,
while conserving capital for stocks and markets with more attractive prospects.
We added fast-growing specialized semiconductor and component maker Rohm, while
eliminating Canon due to poor sales prospects. Continued declines in consumer
spending led to our disposal of department store Takashimaya. We avoided
Japanese banks despite their depressed prices, because it remains uncertain how
they will fare through the ongoing financial crisis and how they will respond to
increased competition.
During the semi-annual period, we sold the Fund's holdings in Chinese "red chip"
stocks--Tianjin Development and China Resources--as well as in interest rate
sensitive stocks, including Hong Kong property plays Cheung Kong and New World
Development, and Development Bank of Singapore. In Malaysia, we replaced
infrastructure company, United Engineers, and tobacco firm, R.J. Reynolds, with
cash-rich gaming companies, Genting and Magnum. We also purchased Singapore
electronics company, Creative Technology.
We participated in the initial public offering of Hungary's Matav Telecom and
sold Sasol, a South African petrochemical firm. In Mexico, we took profits in
retailer Elektra, and added Femsa, a major beverage company which control's the
nation's Coca-Cola franchise. Banco Rio in Argentina was also purchased. Our
cash position ended the six month period at 5.9%.
MANAGERS' OUTLOOK
During the past several years, investors who braved the U.S. stock market were
rewarded, while many foreign markets underperformed. However, we believe U.S.
equity prices have been stretched to levels unjustified by the anticipated
slowdown in corporate earnings, especially this far into an economic expansion.
As a result, many U.S. investors are looking abroad for more attractive
valuations.
In our opinion, Continental European markets, despite their recent strong
run-up, offer the best prospects for earnings growth. We continue to favor
France and the European periphery. We believe that the United Kingdom will
continue to underperform the continent because of the lateness in its economic
cycle, as reflected in its steeply inverted yield curve.
Japan continues to suffer from the deleterious effects of its inefficient and
closed economy. As recession becomes a reality, policy makers are piece-mealing
a plan to revive economic growth and consumer demand. If past efforts can be a
guide, this process may take several years, and its effectiveness remains
largely in doubt. In contrast, we believe systemic risk in the Asia-Pacific
region has bottomed with the stabilization of the regional currencies and the
recent progress made on the policy front in countries like Korea and Thailand.
Although the worst has likely been seen in the region, we continue to remain
cautious as the crisis still unfolds. These markets remain susceptible to
disappointments generated by the continued economic and corporate distress, the
large amount of funds that need to be raised for recapitalizations, and the
inability of Japan to provide economic leadership in Asia's time of need. Major
challenges also remain in the areas of structural reform, corporate
deleveraging, and economic recession.
The environment for emerging markets outside the Asia-Pacific region will likely
remain tempered by the ongoing uncertain global impact of the Asian crisis as
well as by the lower global liquidity levels available relative to last year.
We will, of course, continue to monitor economic conditions and political
initiatives and their effect on financial markets as we seek long-term capital
appreciation.
We value your ongoing support of the International Equity Fund and look forward
to continuing to serve your investment needs in the years ahead.
/s/ Michael Levy
_____________________________
/s/ Robert Reiner
_____________________________
/s/ Julie Wang
_____________________________
Michael Levy, Robert Reiner and Julie Wang
Portfolio Managers of the
International Equity Portfolio
March 31, 1998
5
<PAGE>
International Equity Fund
Performance Comparison
Comparison of Change in Value of a $10,000 Investment in the International
Equity Fund and the Morgan Stanley Capital International EAFE Index since August
31, 1992.
Total Return for the Period
Ended March 31, 1998
Six Months Since 8/4/92*
11.54% 10.37%**
* 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 APPEARS HERE - PLOT POINTS BELOW]
International Equity Fund - $27,532 MSCI EAFE Index - $19,701
Aug-92 $10,000 $10,000
Sep-92 9,665 9,803
Dec-92 9,606 9,424
Mar-93 10,424 10,554
Jun-93 11,084 11,615
Sep-93 11,944 12,386
Dec-93 13,196 12,493
Mar-94 13,717 12,930
Jun-94 13,266 13,590
Sep-94 13,977 13,603
Dec-94 13,738 13,465
Mar-95 14,046 13,715
Jun-95 14,961 13,815
Sep-95 15,911 14,391
Dec-95 15,950 14,974
Mar-96 16,862 15,406
Jun-96 17,881 15,650
Sep-96 18,057 15,630
Dec-96 19,349 15,879
Mar-97 20,108 15,630
Jun-97 23,184 18,766
Sep-97 24,318 18,634
Dec-97 23,050 17,175
Mar-98 27,532 19,701
Past performance is not indicative of future performance.
6
<PAGE>
International Equity Fund
Statement of Assets and Liabilities March 31, 1998 (unaudited)
<TABLE>
<S><C>
Assets
Investment in International Equity Portfolio, at Value $ 923,000,093
Receivable for Shares of Beneficial Interest Subscribed 7,960,140
Prepaid Expenses and Other 117,656
---------------
Total Assets 931,077,889
---------------
Liabilities
Due to Bankers Trust, net 606,099
Payable for Shares of Beneficial Interest Redeemed 318,567
Dividend Payable 1,256
Accrued Expenses and Other 2,823
---------------
Total Liabilities 928,745
---------------
Net Assets $ 930,149,144
===============
Composition of Net Assets
Paid-in Capital $ 731,393,166
Undistributed Net Investment Income 2,040,972
Accumulated Net Realized Loss from Investment, Option and Forward Foreign
Currency Transactions (7,611,862)
Net Unrealized Appreciation on Investment, Options, Foreign Currencies and
Forward Foreign Currency Contracts 204,326,868
---------------
Net Assets $ 930,149,144
===============
Net Asset Value, Offering and Redemption Price Per Share (net assets divided by
shares outstanding) $ 23.96
===============
Shares Outstanding ($0.001 par value per share, unlimited number of shares of
beneficial interest authorized) 38,821,666
===============
</TABLE>
Statement of Operations For the six month period ended
March 31, 1998 (unaudited)
<TABLE>
<S><C>
Investment Income
Income Allocated from International Equity Portfolio, net $ 2,030,217
---------------
Expenses
Administration and Services Fees 2,668,095
Professional Fees 4,463
Trustees Fees 1,329
Miscellaneous 7,821
---------------
Total Expenses 2,681,708
Less Expenses Absorbed by Bankers Trust (13,612)
---------------
Net Expenses in Excess of Investment Income 2,668,096
---------------
Expenses in Excess of Income (637,879)
---------------
Realized and Unrealized Gain on Investment, Options, Foreign Currencies and
Forward Foreign Currency Contracts
Net Realized Gain (Loss) from:
Investment Transactions 650,094
Option Transactions (715,649)
Foreign Currency Transactions (1,442,200)
Net Change in Unrealized Appreciation/Depreciation on Investment, Options,
Foreign Currencies and Forward Foreign Currency Contracts 100,831,232
---------------
Net Realized and Unrealized Gain on Investment, Options, Foreign Currencies and
Forward Foreign Currency Contracts 99,323,477
---------------
Net Increase in Net Assets from Operations $ 98,685,598
===============
</TABLE>
See Notes to Financial Statements on Page 10
7
<PAGE>
International Equity Fund
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the For the
six months ended year ended
March 31, 1998* September 30, 1997
---------------- ------------------
<S><C>
Increase (Decrease) in Net Assets from:
Operations
Net Investment Income (Expenses in Excess of Income) $ (637,879) $ 1,622,491
Net Realized Gain (Loss) from Investment, Option and Foreign
Currency Transactions (1,507,755) 9,495,565
Net Change in Unrealized Appreciation/Depreciation on Investment,
Options, Foreign Currencies and Forward Foreign Currency Contracts 100,831,232 83,738,927
--------------- --------------
Net Increase in Net Assets from Operations 98,685,598 94,856,983
--------------- --------------
Distributions to Shareholders
Net Investment Income (402,898) (1,830,716)
Net Realized Gain from Investment Transactions (15,925,362) (2,293,069)
--------------- --------------
Total Distributions (16,328,260) (4,123,785)
--------------- --------------
Capital Transactions in Shares of Beneficial Interest
Proceeds from Sales of Shares 555,969,484 416,501,704
Dividend Reinvestments 12,079,856 2,988,256
Cost of Shares Redeemed (245,777,739) (146,394,599)
--------------- --------------
Net Increase from Capital Transactions in Shares of Beneficial Interest 322,271,601 273,095,361
--------------- --------------
Total Increase in Net Assets 404,628,939 363,828,559
Net Assets
Beginning of Period 525,520,205 161,691,646
--------------- --------------
End of Period (includes undistributed net investment income of $2,040,972
and $3,081,749, respectively) $ 930,149,144 $ 525,520,205
=============== ===============
</TABLE>
* Unaudited
See Notes to Financial Statements on Page 10
8
<PAGE>
International Equity Fund
Financial Highlights
Contained below are selected data for a share outstanding, total investment
return, ratios to average net assets and other supplemental data for the periods
indicated for the International Equity Fund.
<TABLE>
<CAPTION>
For the For the
For the six year ended year ended
months ended September 30, For the period December 31,
March 31, 1998 ----------------- January 1, 1995 to ---------------
(Unaudited) 1997 1996 September 30, 1995* 1994 1993
-------------- ---- ---- -------------------- ---- ----
<S><C>
Per Share Operating Performance:
Net Asset Value, Beginning of Period $22.13 $16.77 $15.47 $13.37 $13.18 $9.75
------ ------ ------ ------ ------ -----
Income from Investment Operations
Net Investment Income (Expenses in
Excess of Income) (0.06) 0.09 0.18 0.14 0.10 0.05
Net Realized and Unrealized Gain on Investments,
Options, Foreign Currencies and Forward
Foreign Currency Contracts 2.49 5.63 1.80 1.97 0.44 3.60
------ ------ ------ ------ ------ -----
Total from Investment Operations 2.43 5.72 1.98 2.11 0.54 3.65
------ ------ ------ ------ ------ -----
Distributions to Shareholders
Net Investment Income (0.01) (0.16) (0.31) (0.00) (0.09) (0.15)
Net Realized Gain from Investment Transactions (0.59) (0.20) (0.37) (0.01) (0.26) (0.07)
------ ------ ------ ------ ------ -----
Total Distributions (0.60) (0.36) (0.68) (0.01) (0.35) (0.22)
------ ------ ------ ------ ------ -----
Net Asset Value, End of Period $23.96 $22.13 $16.77 $15.47 $13.37 $13.18
====== ====== ====== ====== ====== ======
Total Investment Return 11.54% 34.76% 13.42% 15.82% 4.12% 37.38%
Supplemental Data and Ratios:
Net Assets, End of Period (000s omitted) $930,149 $525,520 $161,692 $82,807 $56,020 $33,869
Ratios to Average Net Assets:
Net Investment Income (Expenses in
Excess of Income) (0.20)%** 0.53% 0.91% 1.55%** 0.84% 0.79%
Expenses, Including Expenses of the
International Equity Portfolio 1.50%** 1.50% 1.50% 1.50%** 1.50% 1.50%
Decrease Reflected in Above Expense
Ratio Due to Absorption of Expenses by
Bankers Trust 0.17%** 0.18% 0.26% 0.33%** 0.37% 0.62%
</TABLE>
* On August 2, 1995, the Board of Trustees approved the change of the fiscal
year end from December 31 to September 30.
** Annualized
See Notes to Financial Statements on Page 10
9
<PAGE>
International Equity Fund
Notes to Financial Statements (unaudited)
Note 1--Organization and Significant Accounting Policies
A. Organization
BT Investment Funds (the "Trust") is registered under the Investment Company Act
of 1940 (the "Act"), as amended, as an open-end management investment company.
The Trust was organized on July 21, 1986, as a business trust under the laws of
the Commonwealth of Massachusetts. The International Equity Fund (the "Fund") is
one of the funds offered to investors by the Trust. The Fund commenced
operations and began offering shares of beneficial interest on August 4, 1992.
The Fund invests substantially all of its assets in the International Equity
Portfolio (the "Portfolio"). The Portfolio is an open-end management investment
company registered under the Act. The Fund seeks to achieve its investment
objective by investing all of its investable assets in the Portfolio. The value
of such investment in the Portfolio reflects the Fund's proportionate interest
in the net assets of the Portfolio. At March 31, 1998, the Fund's investment was
approximately 66% of the Portfolio.
The financial statements of the Portfolio, including the Statement of Net
Assets, are contained elsewhere in this report.
B. Investment Income
The Fund's income, net of expenses, is earned daily on its investment in the
Portfolio and is recorded on an accrual 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.
C. Dividends
It is the Fund's policy to declare and distribute dividends annually to
shareholders from net investment income, if any. Dividends and distributions
payable to shareholders are recorded by the Fund on the ex-dividend date.
Distributions of net realized short-term and long-term capital gains, if any,
earned by the Fund will also be made annually.
D. Federal Income Taxes
It is the Fund's policy to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and distribute substantially
all of its taxable income to shareholders. Therefore, no federal income tax
provision is required. The Fund may periodically make reclassifications among
certain of its capital accounts as a result of the timing and characterization
of certain income and capital gains distributions determined annually in
accordance with federal tax regulations which may differ from generally accepted
accounting principles.
E. Other
The Trust accounts separately for the assets, liabilities, and operations of the
Fund. Expenses directly attributable to the Fund are charged to the 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 .85% of the Fund's average daily net assets. Amount
owed under the Administration and Services Agreement amounted to $606,099 net of
waived expenses of $3,972 as of March 31, 1998.
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 .20% of the Fund's average daily net assets, for expenses incurred in
connection with any activities primarily intended to result in the sale of the
Fund's shares. For the six months ended March 31, 1998, there were no
reimbursable expenses incurred under this agreement.
Bankers Trust has voluntarily undertaken to waive its fees and reimburse
expenses of the Fund, to the extent necessary, to limit all expenses to .85% of
the average daily net assets of the Fund, excluding expenses of the Portfolio
and 1.50% of the average daily net assets of the Fund, including expenses of the
Portfolio. For the six months ended March 31, 1998, expenses of the Fund have
been reduced by $13,612.
Certain officers of the Fund are also directors, officers and/or employees of
Edgewood. None of the officers so affiliated received compensation for services
as officers of the Fund.
The Fund is a participant with other affiliated entities in a revolving credit
facility ("the revolver") and a discretionary demand line of credit facility
collectively ("the credit facilities") in the amounts of $50,000,000 and
$100,000,000, respectively. A commitment fee of .07% per annum on the average
daily amount of the available commitment is payable on a quarterly basis and is
apportioned equally among all participants. Amounts borrowed under the credit
facility will bear interest at a rate per annum equal to the Federal Funds Rate
plus .45%. No amounts were drawn down or outstanding under the credit facilities
as of and for the period ended March 31, 1998.
Note 3--Shares of Beneficial Interest
At March 31, 1998, there were an unlimited number of shares of beneficial
interest authorized. Transactions in shares of beneficial interest were as
follows:
For the six months For the
ended March 31, 1998 year ended
(Unaudited) September 30, 1997
---------------------- --------------------
Shares Amount Shares Amount
------ ------ ------ ------
Sold 26,078,333 $555,969,484 21,331,563 $416,501,704
Reinvested 608,251 12,079,856 175,785 2,988,256
Redeemed (11,616,467) (245,777,739) (7,397,087) (146,394,599)
----------- ------------ ---------- ------------
Net Increase 15,070,117 $322,271,601 14,110,261 $273,095,361
=========== ============ ========== ============
10
<PAGE>
International Equity Portfolio
Statement of Net Assets March 31, 1998 (unaudited)
Shares Description Value
------ ----------- -----
COMMON STOCKS - 94.11%
Argentina - 0.27%
296,300 Banco Rio de La Plata SA, ADR
(Financial Services) (a) $ 3,703,750
-----------
Australia - 1.83%
265,600 Brambles Industries Ltd. (Services) 5,539,789
3,007,320 Goodman Fielder Ltd. (Consumer
Goods Non-Durables) 4,678,991
2,978,116 National Mutual Holdings Ltd.
(Financial Services) 6,498,035
919,900 TABCORP Holdings Ltd. (Services) 4,945,290
583,100 Woodside Petroleum Ltd. (Energy) 3,867,119
-----------
25,529,224
-----------
Austria - 0.79%
185,487 Erste Bank Der Oesterreichischen
Sparkassen AG (Financial Services) (a) 11,076,957
-----------
Belgium - 1.15%
109,900 Credit Communal Holding/Dexia
(Financial Services) 16,045,688
-----------
Botswana - 0.31%
3,185,700 Sechaba Breweries Ltd. (Consumer
Goods Non-Durables) (a) 4,356,126
-----------
Brazil - 0.61%
262,770 Companhia Paranaense de Energia-
Copel, ADR (Utilities) 3,826,588
9,100 Telebras, ADR (Telecommunications) 1,181,294
33,537,900 Telecomunic Brasileiras SA
(Telecommunications) 3,465,573
-----------
8,473,455
-----------
Canada - 2.98%
206,500 Cadillac Fairview Corp. (Property) (a) 4,421,266
434,800 Newcourt Credit Group, Inc.
(Financial Services) 21,706,370
262,100 Royal Bank of Canada (Financial Services) 15,508,167
-----------
41,635,803
-----------
Finland - 2.48%
371,400 KCI Konecranes International Plc.
(Capital Equipment) 17,072,211
64,700 Nokia Corp., ADR-A (Technology) 6,983,556
415,400 UPM-Kymmene Oyj (Materials) 10,583,534
-----------
34,639,301
-----------
France - 17.08%
58,207 Accor SA (Services) 14,937,157
57,710 Alcatel Alsthom (Technology) 10,832,442
172,000 AXA-UAP (Financial Services) 17,711,067
249,700 Banque Nationale de Paris (Financial Services) 19,404,856
162,400 Compagnie Financiere de Paribas-A
(Financial Services) 16,434,223
351,400 Dassault Systemes SA, ADR (Technology) 13,880,300
115,200 Elf Aquitaine SA (Energy) 15,097,468
245,939 Michelin-B (Consumer Goods Durables) 14,682,748
436,100 Renault SA (Consumer Goods Durables) 19,426,330
181,400 Rhone-Poulenc-A (Healthcare) 9,219,461
185,032 Schneider SA (Capital Equipment) 14,244,947
226,674 SEITA (Consumer Goods Non-Durable) 8,890,037
Shares Description Value
------ ----------- -----
597,000 Societe Generale d'Entreprises SA
(Capital Equipment) $21,197,889
117,200 Suez Lyonnaise des Eaux SA (Utilities) 16,929,582
121,900 Total SA-B (Energy) 14,637,680
85,896 Unibail (Property) 10,757,968
-----------
238,284,155
-----------
Germany - 8.23%
89,600 Adidas AG (Consumer Goods Non-Durable) 15,888,569
28,400 Allianz AG (Financial Services) 8,576,511
189,450 Bayerische Vereinsbank AG (Financial Services) 13,829,215
143,200 Daimler-Benz AG (Consumer Goods Durables) 13,163,188
780,900 Deutsche Lufthansa AG (Transportation) 16,446,445
19,500 Mannesmann AG (Capital Equipment) 14,276,522
25,300 SAP AG-Vorzug (Technology) 10,759,408
9,600 Viag AG (Utilities) 5,232,400
21,220 Volkswagen AG (Consumer Goods Durables) 16,614,340
-----------
114,786,598
-----------
Hong Kong - 1.48%
9,553,000 Beijing Datang Power
Generation Co. Ltd. (Utilities) 4,407,673
2,817,000 Cosco Pacific Ltd. (Multi-Industry) 2,363,164
3,668,000 First Tractor Co. Ltd.-H (Capital Equipment) 2,508,989
2,505,000 Gaungnan Holdings (Consumer
Goods Non-Durables) 1,600,319
528,000 Hutchison Whampoa Ltd. (Multi-Industry) 3,713,847
3,560,000 NG Fung Hong Ltd. (Consumer Goods
Non-Durables) 3,468,890
619,000 Shanghai Industrial Holdings Ltd.
(Multi-Industry) 2,532,465
-----------
20,595,347
-----------
Hungary - 0.52%
234,900 Mol Magyar Olaj Es Gazipari Rt.,
GDR (Energy) (a) 7,202,316
-----------
Indonesia - 0.19%
30,600 Fiskaragung Perkasa PT (Consumer
Goods Non-Durables) 2,388
4,600 Gulf Indonesia Resources Ltd. (Energy) 82,800
260,300 Telekomunikasi Indonesia, ADR
(Telecommunications) 2,554,194
-----------
2,639,382
-----------
Ireland - 3.31%
928,700 Bank of Ireland (Financial Services) 18,360,901
1,228 867 CRH Plc. (Materials) 18,467,816
3,248,700 Jefferson Smurfit Group Plc. (Materials) 9,314,244
-----------
46,142,961
-----------
Italy - 9.79%
8,782,400 Banca di Roma (Financial Services) 14,814,586
512,100 Banca Nazionale del Lavoro (Financial Services) 13,835,416
1,816,000 Bulgari SPA (Consumer Goods Non-Durable) 12,442,552
6,099,400 Credito Italiano (Financial Services) 30,130,201
1,718 000 ENI SPA (Energy) 11,705,122
24,300 ENI SPA, ADR (Energy) 1,646,325
2,181,400 Italgas SPA (Utilities) (a) 10,973,264
595,100 Ittierre Holding SPA (Consumer Goods
Non-Durable) 2,476,149
7,771,600 Parmalat Finanziaria SPA (Financial Services) 16,711,972
2,782,000 Telecom Italia SPA (Telecommunications) 21,922,696
-----------
136,658,283
-----------
See Notes to Financial Statements on Pages 16, 17 and 18
11
<PAGE>
International Equity Portfolio
Statement of Net Assets March 31, 1998 (unaudited)
Shares Description Value
------ ----------- -----
Japan - 4.47%
182,100 AJL Peps Trust (Consumer Goods
Non-Durables) $ 1,821,000
283,000 Fuji Photo Film Co. (Consumer Goods
Non-Durables) 10,525,890
142,200 Nintendo Corp. Ltd. (Consumer Goods
Non-Durables) 12,262,757
91,000 Rohm Co. (Technology) 8,325,147
338,000 Sankyo Co. Ltd. (Healthcare) 9,377,976
121,300 Sony Corp. (Consumer Goods Durable) 10,278,505
384,000 Takeda Chemical Industries
(Healthcare) 9,761,614
-----------
62,352,889
-----------
Malaysia - 0.36%
905,000 Genting BHD (Services) 3,107,830
2,200,000 Magnum Corp. BHD (Services) 1,885,714
-----------
4,993,544
-----------
Mexico - 0.71%
516,000 Fomento Economico (Consumer Goods
Non-Durable) 3,749,753
169,600 Grupo Televisa, GDR (Services) 6,211,600
-----------
9,961,353
-----------
Netherlands - 6.43%
132,800 Benckiser NV-B (Consumer Goods
Non-Durable) (a) 7,332,125
436,800 Hagemeyer NV (Services) 21,162,182
308,784 ING Groep NV (Financial Services) 17,522,496
376,900 Ispat International NV (Materials) (a) 10,741,650
394,300 Koninklijke Ahold NV (Services) 12,729,117
243,700 Nutreco Holding NV (Consumer Goods
Non-Durable) 8,066,053
165,600 Philips Electronics NV (Consumer
Goods Durable) 12,153,691
-----------
89,707,314
-----------
New Zealand - 0.20%
598,300 Telecom Corporation of New Zealand Ltd.
(Telecommunications) 2,851,239
-----------
Philippines - 0.11%
56,870 Philippine Long Distance Telephone Co.,
ADR (Telecommunications) 1,585,251
-----------
Portugal - 5.80%
262,700 Banco Comercial Portugues, SA
(Financial Services) 8,481,800
252,500 BPI-SGPS, SA (Financial Services) 9,712,308
411,800 Cimpor-Cimentos de Portugal SGPS SA
(Materials) 14,511,224
575,700 Electricidade de Portugal SA (Utilities) 13,359,389
234,200 Portugal Telecom SA (Telecommunications) 12,181,442
42,700 Portugal Telecom SA, ADR
(Telecommunications) 2,239,081
131,900 Telecel-Comunicacaoes Pessoais, SA
(Telecommunications) (a) 20,474,986
-----------
80,960,230
-----------
Russia - 0.55%
334,000 Tatneft ADR 144A (Energy) (b) 7,732,100
-----------
Shares Description Value
------ ----------- -----
Singapore - 0.58%
180,800 Creative Technology Ltd. (Technology) (a) $ 4,068,000
1,075,400 Venture Manufacturing (Singapore) Ltd.
(Technology) 3,995,294
-----------
8,063,294
-----------
Spain - 6.72%
220,674 Aldeasa SA (Services) 7,814,205
228,000 Banco Popular Espanol SA (Financial Services) 22,129,860
167,190 Corporacion Bancaria de Espana SA
(Financial Services) 13,842,435
576,872 Endesa SA (Utilities) 13,869,323
392,191 Fomento de Construcciones y
Contratas SA (Multi-Industry) 20,731,684
348,297 Telefonica de Espana (Telecommunications) 15,350,224
-----------
93,737,731
-----------
Sweden - 2.90%
884,700 Castellum AB (Property) 9,240,409
179,200 Electrolux AB-Ser. B
(Consumer Goods Durable) 14,794,171
844,700 Stora Kopparbergs Bergslags Aktiebolag-A
(Materials) 12,996,197
109,600 Volvo AB-B (Autos & Trucks)
(Consumer Goods Durable) 3,489,049
-----------
40,519,826
-----------
Switzerland - 4.53%
7,655 ABB AG-Bearer (Capital Equipment) 11,438,563
7,120 Novartis AG (Healthcare) 12,600,695
50,200 Credit Suisse (Financial Services) 10,043,293
8,120 UBS-Bearer (Financial Services) 13,262,578
27,400 Zurich VersicherungsGesellschaft
(Financial Services) 15,906,199
-----------
63,251,328
-----------
Thailand - 0.12%
148,100 PTT Exploration & Production (Energy) 1,682,869
-----------
United Kingdom - 8.98%
487,000 Barclays Plc. (Financial Services) 14,573,525
1,764,465 BG Plc. (Utilities) 9,130,247
538,900 British Aerospace Plc. (Capital Equipment) 17,732,984
1,071,400 British Energy Plc. (Utilities) 9,334,151
967,900 British Land Co. Plc. (Property) 12,115,819
133,309 British Petroleum Plc., ADR (Energy) 11,472,906
887,300 Compass Group Plc. (Services) 15,111,324
406,800 Glaxo Wellcome Plc. (Healthcare) 10,804,265
636,500 Millennium & Copthorne Hotels Plc.
(Services) 5,931,638
621,900 Railtrack Group Plc. (Transportation) 10,226,879
1,839,500 SOCO International Plc. (Energy) 8,794,618
-----------
125,228,356
-----------
United States - 0.51%
153,300 Global TeleSystems Group, Inc.
(Telecommunications) (a) 7,166,775
-----------
Venezuela - 0.12%
1,788,583 La Electricidad de Caracas (Utilities) 1,687,021
2 Mavesa SA, ADR (Consumer Goods
Non-Durables) 11
-----------
1,687,032
-----------
Total Common Stock (Cost $1,054,664,871) 1,313,250,477
-------------
See Notes to Financial Statements on Pages 16, 17 and 18
12
<PAGE>
International Equity Portfolio
Statement of Net Assets March 31, 1998 (unaudited)
Shares Description Value
------ ----------- -----
CORPORATE DEBT NON-CONVERTIBLE - 0.49%
South Africa - 0.49%
195,000 Liberty Life International Straight Line, 0.00%,
9/30/04 (Financial Services) $ 286,728
4,420,000 Liberty Life International, 6.50%, 9/30/04
(Financial Services) 6,499,168
-----------
6,785,896
-----------
Total Corporate Debt Non-Convertible (Cost $5,728,361) 6,785,896
-----------
OTHER SECURITIES - 0.10%
Germany - 0.04%
27,200 Allianz AG Rights (Financial Services) (a) 134,573
20,740 Volkswagen AG Rights (Consumer Goods--
Durable) (a) 376,805
-----------
511,378
-----------
Portugal - 0.06%
259,800 Banco Comercial Portugues,
SA Rights (Financial Services) (a) 831,495
-----------
Total Other Securities (Cost $0) 1,342,873
-----------
SHORT TERM INSTRUMENTS - 6.44%
U.S.A. - 6.44%
88,996,341 BT Institutional Cash Management Fund,
5.51%, 4/01/98 88,996,341
810,000 U.S. Treasury Bill, 5.13%, 5/21/98 804,229
-----------
89,800,570
-----------
Total Short Term Instruments (Cost $89,800,570) 89,800,570
-----------
Options - 0.54%
1,627 Nikkei 225 Index, September 1998 1,556,593
4,141 Nikkei 225 Index, September 1998 3,254,301
1,454 Nikkei 225 Index, September 1998 1,064,191
436 Nikkei 225 Index, September 1998 943,941
1,395 Nikkei 225 Index, September 1998 726,694
-----------
Total Options (Cost $10,423,405) 7,545,720
-----------
Description Value
----------- -----
Total Investments (Cost $1,160,617,207) 101.68% $1,418,725,533
Liabilities in Excess of Other Assets (1.68)% (23,475,629)
------- --------------
Net Assets 100.00% $1,395,249,904
======= ==============
- ----------
(a) Non-Income Producing Security
(b) Security exempt from registration under Rule 144A of the Securities Act of
1933. This Security may be resold in transactions exempt from registrations,
normally to qualified institutional buyers.
The following abbreviations are used in portfolio descriptions:
ADR--American Depository Receipt
GDR--Global Depository Receipt
Industry Diversification (as a percentage of Total Investments):
Capital Equipment 7.47%
Consumer Goods--Durable 8.10%
Consumer Goods--Non-Durable 7.26%
Energy 6.36%
Financial Services 27.99%
Materials 3.92%
Multi-Industry 5.81%
Property 2.22%
Services 2.77%
Technology 7.53%
Telecommunications 4.46%
Transportation 6.07%
Utilities 2.02%
Other 8.02%
------
100.00%
======
See Notes to Financial Statements on Pages 16, 17 and 18
13
<PAGE>
International Equity Portfolio
Statement of Operations For the six month period ended March 31, 1998
(unaudited)
<TABLE>
<S><C>
Investment Income
Dividends (net of foreign withholding tax of $470,225) $ 3,657,656
Interest 1,824,662
---------------
Total Investment Income 5,482,318
---------------
Expenses
Advisory Fees 2,602,567
Administration and Services Fees 600,591
Professional Fees 20,181
Miscellaneous Fees 23,793
Trustees Fees 1,833
---------------
Total Expenses 3,248,965
Less: Expenses Absorbed by Bankers Trust (646,398)
---------------
Net Expenses 2,602,567
---------------
Net Investment Income 2,879,751
---------------
Realized and Unrealized Gain on Investments, Options, Forward Currencies and
Forward Foreign Currency Contracts
Net Realized Gain/(Loss) from:
Investment Transactions 1,455,493
Foreign Currency Transactions (2,002,385)
Option Transactions (816,750)
Net Change in Unrealized Appreciation/Depreciation on Investments, Options,
Foreign Currencies and Forward Foreign Currency Contracts 153,255,091
---------------
Net Realized and Unrealized Gain on Investments, Options, Foreign Currencies and
Forward Foreign Currency Contracts 151,891,449
---------------
Net Increase in Net Assets from Operations $ 154,771,200
===============
</TABLE>
See Notes to Financial Statements on Pages 16, 17 and 18
14
<PAGE>
International Equity Portfolio
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the
six months ended For the
March 31, 1998 year ended
(unaudited) September 30, 1997
---------------- ------------------
<S><C>
Increase in Net Assets from:
Operations
Net Investment Income $ 2,879,751 $ 4,290,878
Net Realized Gain (Loss) from Investments, Options and
Foreign Currency Transactions (1,363,642) 10,056,354
Net Change in Unrealized Appreciation/Depreciation on Investments, Options,
Foreign Currencies and Forward Foreign Currency Contracts 153,255,091 85,109,689
--------------- ---------------
Net Increase in Net Assets from Operations 154,771,200 99,456,921
--------------- ---------------
Capital Transactions
Proceeds from Capital Invested 1,013,261,964 476,033,118
Value of Capital Withdrawn (345,188,122) (167,898,538)
--------------- ---------------
Net Increase in Net Assets from Capital Transactions 668,073,842 308,134,580
--------------- ---------------
Total Increase in Net Assets 822,845,042 407,591,501
Net Assets
Beginning of Period 572,404,862 164,813,361
--------------- ---------------
End of Period $ 1,395,249,904 $ 572,404,862
=============== ===============
</TABLE>
Financial Highlights
Contained below are selected supplemental data and ratios
for each of the periods indicated for the International Equity Portfolio.
<TABLE>
<CAPTION>
For the For the
year ended year ended
For the September 30, For the period December 31,
six months ended -------------------- January 1, 1995 to ---------------
March 31, 1998++ 1997 1996 September 30, 1995+ 1994 1993
----------------- ---- ---- ------------------- ---- ----
<S><C>
Supplemental Data and Ratios:
Net Assets, End of Period (000s omitted) $1,395,250 $572,405 $164,813 $83,313 $56,042 $33,907
Ratios to Average Net Assets:
Net Investment Income 0.72%* 1.35% 1.76% 2.39%* 1.69% 1.64%
Expenses 0.65%* 0.65% 0.65% 0.65%* 0.65% 0.65%
Decrease Reflected in Above Expense
Ratios Due to Absorption of Expenses
by Bankers Trust 0.16%* 0.17% 0.20% 0.22%* 0.24% 0.39%
Portfolio Turnover Rate 30% 63% 68% 21% 15% 17%
- ----------
+ On August 2, 1995, the Board of Trustees approved the change of the fiscal
year end from December 31 to September 30.
* Annualized
++ Unaudited.
See Notes to Financial Statements on Pages 16, 17 and 18
15
<PAGE>
International Equity Portfolio
Notes to Financial Statements (unaudited)
Note 1--Organization and Significant Accounting Policies
A. Organization
The International Equity Portfolio (the "Portfolio") is registered under the
Investment Company Act of 1940 (the "Act"), as amended, as an open-end
management investment company. The Portfolio was organized on December 11, 1991
as an unincorporated trust under the laws of New York and commenced operations
on August 4, 1992. The Declaration of Trust permits the Board of Trustees (the
"Trustees") to issue beneficial interests in the Portfolio.
B. Security Valuation
The Portfolio's investments listed or traded on National Stock Exchanges or
other domestic or foreign exchanges are valued based on the closing price of the
security traded on that exchange prior to the time when the Portfolio assets are
valued. Short-term obligations with remaining maturities of 60 days or less are
valued at amortized cost. Other short-term debt securities are valued on a
mark-to-market basis until such time as they reach a remaining maturity of 60
days, whereupon they are valued at amortized cost using their value on the 61st
day. All other securities and other assets are valued at their fair value as
determined in good faith under procedures established by and under the general
supervision of the Trustees.
C. Security Transactions and Interest Income
Security transactions are accounted for on a trade date basis. Dividend income,
less foreign taxes withheld, if any, is recorded on the ex-dividend date or upon
receipt of ex-dividend notification in the case of certain foreign securities.
Interest income is recorded on the accrual basis and includes amortization of
premium and discount on investments. Expenses are recorded as incurred. Realized
gains and losses from securities transactions are recorded on the identified
cost basis.
All of the net investment income and realized and unrealized gains and losses
from the security and foreign currency transactions of the Portfolio are
allocated pro rata among the investors in the Portfolio at the time of such
determination.
D. Repurchase Agreements
The Portfolio may enter into repurchase agreements with financial institutions
deemed to be creditworthy by the Portfolio's Investment Advisers, subject to the
seller's agreement to repurchase such securities at a mutually agreed upon
price. Securities purchased subject to repurchase agreements are deposited with
the Portfolio's custodian, and pursuant to the terms of the repurchase agreement
must have an aggregate market value greater than or equal to the repurchase
price plus accrued interest at all times. If the value of the underlying
securities falls below the value of the repurchase price plus accrued interest,
the Portfolio will require the seller to deposit additional collateral by the
next business day. If the request for additional collateral is not met, or the
seller defaults on its repurchase obligation, the Portfolio maintains the right
to sell the underlying securities at market value and may claim any resulting
loss against the seller. However, in the event of default or bankruptcy by the
seller, realization and/or retention of the collateral may be subject to legal
proceedings.
E. Foreign Currency Transactions
The books and records of the Portfolio are maintained in U.S. dollars. All
assets and liabilities initially expressed in foreign currencies are converted
into U.S. dollars at prevailing exchange rates. Purchases and sales of
investment securities, dividend and interest income, and certain expenses are
translated at the rates of exchange prevailing on the respective dates of such
transactions.
F. Forward Foreign Currency Contracts
The Portfolio may enter into forward foreign currency contracts for the purpose
of settling specific purchases or sales of securities denominated in a foreign
currency or with respect to the Portfolio's investments. The net U.S. dollar
value of foreign currency underlying all contractual commitments held by the
Portfolio and the resulting unrealized appreciation or depreciation are
determined using prevailing exchange rates. With respect to forward foreign
currency contracts, losses in excess of amounts recognized may arise due to
changes in the value of the foreign currency or if the counterparty does not
perform under the contract.
G. Option Contracts
Upon the purchase of a put option or a call option by a Portfolio, the premium
paid is recorded as an investment and marked-to-market daily to reflect the
current market value. When a purchased option expires, the Portfolio will
realize a loss in the amount of the cost of the option. When the Portfolio
enters into a closing sale transaction, the Portfolio will realize a gain or
loss depending on whether the sale proceeds from the closing sale transaction
are greater or less than the cost of the option. When the Portfolio exercises a
put option, it realizes a gain or loss from the sale of the underlying security
and the proceeds from such sale will be decreased by the premium originally
paid. When the Portfolio exercises a call option, the cost of the security which
the Portfolio purchases upon exercise will be increased by the premium
originally paid.
H. Futures Contracts
The Portfolio may enter into financial futures contracts which are contracts to
buy a standard quantity of securities at a specified price on a future date. The
Portfolio is required to deposit either in cash or securities an amount equal to
a certain percentage of the contract amount. Subsequent payments are made or
received by the Portfolio each day, dependent on the daily fluctuations in the
value of the underlying security, and are recorded for financial statement
purposes as unrealized gains or losses by the Portfolio.
Futures contracts are valued at the settlement price established each day by the
board of trade or exchange on which they are traded.
I. Federal Income Taxes
It is the Portfolio's policy to comply with the requirements of the Internal
Revenue Code. Therefore, no federal income tax provision is required.
J. Other
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts in the financial statements. Actual results could
differ from those estimates.
Note 2--Fees and Transactions with Affiliates
The Portfolio has entered into an Administration and Services Agreement with
Bankers Trust Company ("Bankers Trust"). Under this Administration and Services
Agreement, Bankers Trust provides administrative, custody, transfer agency and
shareholder services to the Portfolio in return for a fee computed daily and
paid monthly at an
16
<PAGE>
International Equity Portfolio
Notes to Financial Statements (unaudited)
annual rate of 0.15 of 1% of the Portfolio's average daily net assets. Amounts
owed under the Administration and Services Agreement amounted to $173,634 as of
March 31, 1998.
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 .65% of the Portfolio's
average daily net assets. Accrued advisory fees amounted to $556,525, net of
reimbursable expenses of $196,225 as of March 31, 1998.
Bankers Trust has voluntarily undertaken to waive and reimburse expenses of the
Portfolio, to the extent necessary, to limit all expenses to .65% of the average
daily net assets of the Portfolio. For the six months ended March 31, 1998,
expenses of the Portfolio have been reduced $646,398.
Certain officers of the Portfolio are also directors, officers and/or employees
of Edgewood Services, Inc., distributor of the BT Institutional Funds. None of
the officers so affiliated received compensation for services as officers of the
Portfolio.
The Portfolio may invest in the BTInstitutional Cash Management Fund ("the
Fund"), an open-end management investment company managed by Bankers Trust
Company ("the Company"). The fund is offered as a cash management option to the
Portfolio and other accounts managed by the Company. Distributions from the fund
to the Portfolio as of March 31, 1998 amounted to $1,618,828.
The Portfolio is a participant with other affiliated entities in a revolving
credit facility ("the revolver")and a discretionary demand line of credit
facility collectively ("the credit facilities") in the amounts of $50,000,000
and $100,000,000 respectively. A quarterly commitment fee of .07% per annum on
the average daily amount of the available commitment is payable on a quarterly
basis and is apportioned equally among all participants. Amounts borrowed under
the credit facilities will bear interest at a rate per annum equal to the
Federal Funds Rate plus .45%. No amounts were drawn down or outstanding under
the credit facilities as of and for the period ended March 31, 1998.
Note 3--Purchases and Sales of Investment Securities
The aggregate cost of purchases and proceeds from sales of investments, other
than short-term obligations, for the six months ended March 31, 1998, were
$856,380,062 and $225,463,219, respectively. Amounts payable for securities
purchased amounted to $41,711,708.
Note 4--Open Forward Foreign Currency Contracts
As of March 31, 1998, the International Equity Portfolio had the following open
forward foreign currency contracts outstanding:
</TABLE>
<TABLE>
<CAPTION>
Net Unrealized
Appreciation
Contracts to Deliver In Exchange For Settlement Date Value (US$) (Depreciation) (US$)
- ---------------------------------------------------------------------------------------------------------------
Sales
- ---------------------------------------------------------------------------------------------------------------
<S><C>
DEM 4,000,000 USD 2,186,354 04/08/98 2,165,557 20,797
DEM 42,950,000 USD 23,474,525 04/08/98 23,252,666 221,859
MYR 16,700,000 USD 4,204,008 04/08/98 4,588,164 (384,156)
- ---------------------------------------------------------------------------------------------------------------
Net Depreciation (141,500)
- ---------------------------------------------------------------------------------------------------------------
Purchases
- ---------------------------------------------------------------------------------------------------------------
ATS 3,000,000 USD 230,769 04/02/98 230,572 (197)
AUD 200,000 USD 132,460 04/02/98 132,640 180
CHF 1,100,000 USD 720,603 04/02/98 721,548 945
DEM 3,000,000 USD 1,620,746 04/02/98 1,622,148 1,402
ESP 110,000,000 USD 700,637 04/02/98 700,570 (67)
FIM 500,000 USD 89,389 04/01/98 89,084 (305)
FIM 1,200,000 USD 213,904 04/02/98 213,801 (103)
GBP 3,000,000 USD 5,023,500 04/02/98 5,023,800 300
IEP 500,000 USD 679,300 04/02/98 679,400 100
ITL 2,000,000,000 USD 1,099,294 04/01/98 1,097,138 (2,156)
JPY 100,000,000 USD 757,289 04/01/98 749,878 7,411
NLG 25,000,000 USD 11,984,660 04/02/98 11,992,133 7,473
NZD 5,403,000 USD 2,994,883 04/01/98 2,987,049 (7,834)
PTE 175,000,000 USD 923,970 04/02/98 923,995 25
SGD 400,000 USD 247,831 04/02/98 247,678 (153)
- ---------------------------------------------------------------------------------------------------------------
Net Appreciation 7,021
- ---------------------------------------------------------------------------------------------------------------
Total/Net Depreciation (134,479)
- ---------------------------------------------------------------------------------------------------------------
17
<PAGE>
International Equity Portfolio
Notes to Financial Statements (unaudited)
SGD--Singapore Dollar
DEM--German Deutschemark
MYR--Malaysian Ringgit
ATS--Austrian Schilling
AUD--Australian Dollar
CHF--Swiss Franc
ESP--Spanish Peseta
PTE--Portuguese Escudo
FIM--Finnish Markka
GBP--British Pound
IEP--Irish Punt
ITL--Italian Lira
JPY--Japanese Yen
NLG--Dutch Guilder
NZD--New Zealand Dollar
The tax basis of investments held at March 31, 1998 amounted to $1,160,617,207.
The aggregate gross unrealized appreciation for all investments was $269,982,503
and the aggregate gross depreciation for all investments was $11,874,177.
Note 5--Net Assets
On March 31, 1998, net assets consisted of:
Paid-in Capital $1,137,075,116
Net Unrealized Appreciation on Investments,
Options, Foreign Currencies and Forward
Foreign Currency Contracts 258,174,788
--------------
$1,395,249,904
==============
Note 6--Foreign Securities
The Portfolio invests in foreign securities. Investing in foreign companies and
foreign governments involves special risks and considerations not typically
associated with investing in U.S. companies and the U.S. government. These risks
include devaluation of currencies and future adverse political and economic
developments. Moreover, securities of many foreign companies and foreign
governments and their markets may be less liquid and their prices more volatile
than those of securities of comparable U.S. companies and the U.S. government.
This is particularly true with respect to emerging markets in developing
countries.
18
<PAGE>
This page intentionally left blank.
19
<PAGE>
BT INVESTMENT FUNDS
BT INTERNATIONAL EQUITY FUND
Investment Advisor and Administrator of the Portfolio
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. This must be preceded or
accompanied by a current prospectus for the Fund.
........................
STA463100 (5/98)
</TABLE>
