o BT INVESTMENT FUNDS o
GLOBAL HIGH YIELD
SECURITIES FUND
ANNUAL REPORT
----------------
SEPTEMBER o 1998
<PAGE>
GLOBAL HIGH YIELD SECURITIES FUND
Table of Contents
- --------------------------------------------------------------------------------
Letter to Shareholders 3
Global High Yield Securities Fund
Statement of Assets and Liabilities 6
Statement of Operations 6
Statements of Changes in Net Assets 7
Financial Highlights 7
Notes to Financial Statements 8
Report of Independent Accountants 10
Tax Information 10
Global High Yield Securities Portfolio
Schedule of Portfolio Investments 11
Statement of Assets and Liabilities 12
Statement of Operations 12
Statements of Changes in Net Assets 13
Financial Highlights 13
Notes to Financial Statements 14
Report of Independent Accountants 16
----------------
The Fund is not insured by the FDIC and is not a deposit,
obligation of or guaranteed byBankers Trust Company. The
Fund is subject to investment risks, including possible
loss of principal amount invested.
----------------
2
<PAGE>
GLOBAL HIGH YIELD SECURITIES FUND
Letter to Shareholders
- --------------------------------------------------------------------------------
We are pleased to present you with this annual report for the Global High Yield
Securities Fund (the "Fund"), providing a review of the markets, 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.
MARKET ACTIVITY
The rather dramatic split between the performance of the U.S. and emerging
markets seen during the first half of the Fund's fiscal year continued for the
remainder of the year. This was primarily due to the Asian economic and currency
crises, which, having caused major turbulence around the world in the fourth
calendar quarter of 1997, soon evolved into widespread financial turmoil. The
well-publicized global crisis was punctuated towards the end of the period by
Russia defaulting on its domestic debt only weeks after entering into a new
International Monetary Fund (IMF)-assisted bailout.
Emerging Markets
Emerging markets' performance, as measured by the J.P. Morgan Emerging Markets
Bond Index, returned a negative 20.89% for the year ended September 30, 1998, as
the sovereign yield spread of the Index to U.S. Treasuries widened significantly
from 3.50% at the start of the fiscal year to 12.91% at the end.
o There was an overriding negative tenor amongst the emerging markets during the
year. At the beginning of the annual period, the Asian economic crisis was
accelerating, and concerns that similar problems would arise in other emerging
markets was growing. In late December into January, Korea was successful in
re-scheduling its short-term bank debt and was able to raise $4 billion in the
international bond market. This encouraged the markets, and yield spreads were
able to recover modestly during the spring of 1998. However, as the year
progressed, signs of disinflation mounted, particularly in commodity markets.
Several key economies were forced to raise interest rates dramatically to defend
their currencies. The growing financial turmoil was marked particularly by a
political turnover marred by rioting and ethnic violence in Indonesia, the
world's fourth most populous nation. Finally, in August, Russia defaulted on its
domestic debt.
o Despite the global financial turmoil, the longer-term trends among the world's
lesser developed economies continues to be positive.
- - Government spending and participation in the economy continues to be reduced
practically everywhere through fiscal discipline and privatization. Even in
China, a potent symbol of the communist, state-controlled approach to
economics, difficult but concrete steps have been made to shut down
state-owned enterprises in favor of more efficient, free market-oriented
firms.
- - Monetary discipline has been achieved in previously chaotic economies to great
positive effect--Bulgaria perhaps being the best, most recent example.
- - In those countries where the bulk of macroeconomic reforms have already been
addressed, progress is being made on the more micro issues of labor market and
pension reform, as well as banking supervision and financial reporting.
o Even with the larger and undeniable backdrop of progress, there remains a
question of confidence. A crucial question has arisen as to whether the pace and
depth of this economic and monetary reform has been sufficient to withstand the
pressures of a deflationary pricing environment. Unfortunately, the reversal of
reform policies in small but symbolic economies, such as Russia and Malaysia, as
well as the hesitant reaction of key policy makers has severely sapped
confidence at this important juncture.
U.S. Market
The high yield market in the U.S., as measured by the Merrill Lynch High Yield
Index,** returned 3.14% for the year ended September 30, 1998. This performance
lagged U.S. Treasuries by almost 10%, reflecting a widening yield spread between
the two sectors, from approximately 2.77% at the beginning of the fiscal year to
approximately 5.88% at its end.
Initially, the widening yield spread between the high yield sector and U.S.
Treasuries was somewhat sporadic and primarily driven by record high levels of
new issuance. However, the bulk of the widening occurred rapidly and
dramatically during August and September 1998. This deterioration was initially
sparked by earnings concerns and by several disappointing announcements of
corporate earnings in the face of tight labor markets and weak pricing power.
The negative sentiment caused by the poor earnings environment was exacerbated
in August following the Russian default. This event led to fears of hedge fund
liquidations that plagued most asset classes, including the high yield market.
INVESTMENT REVIEW
The Fund underperformed both its benchmark and its category average for the
annual period. Still, the Fund benefited from an underweight position in the
emerging markets in general, a significant underweighting in Russia and Brazil
in particular, and defensive industry positioning within the U.S. high yield
sector. The Fund was hurt by its Asian bond holdings and by some specific U.S.
high yield issuers, which announced surprisingly negative earnings during the
third calendar quarter of 1998. It is also important to note that unlike its
benchmark, the Fund both historically and as a matter of investment policy, does
not normally carry large Organization for Economic Cooperation and Development
(OECD) government bond positions. The benchmark includes this sector in an
effort to introduce a broader global element not present in the heavily Latin
American-based
Diversification of Portfolio Investments
By Country as of September 30, 1998
(percentages are based on market value)
[PIE CHART APPEARS HERE -- PLOT POINTS BELOW]
Philippines 2% Germany 2%
Bulgaria 2% Argentina 1%
Panama 3% China 1%
Mexico 5% Colombia 1%
United States 83%
3
<PAGE>
GLOBAL HIGH YIELD SECURITIES FUND
Letter to Shareholders (continued)
- --------------------------------------------------------------------------------
Brady indices, however, we continue to believe that the Fund's strategy is the
more prudent one in light of our investment objective over the long term. In
support of this strategy is the fact that, for the three years ended September
30, 1998 and since inception, the Fund's performance is well ahead of both its
benchmark and its Lipper category average.
<TABLE>
<CAPTION>
Periods ended September 30, 1998 Cumulative Total Returns Average Annual Total Returns
- -------------------------------------------------------------------------------------------------
Past 1 Past 3 Since Past 1 Past 3 Since
year years inception year years inception
- -------------------------------------------------------------------------------------------------
<S><C>
BT Global High Yield Securities Fund* -7.63% 37.14% 47.15% -7.63% 11.10% 8.39%
(inception 12/14/93)
- -------------------------------------------------------------------------------------------------
Fund Benchmark** -1.39% 33.03% 44.83% -1.39% 9.98% 8.11%
- -------------------------------------------------------------------------------------------------
Lipper Global Income Average*** 3.44% 21.39% 28.27% 3.44% 6.55% 5.26%
- -------------------------------------------------------------------------------------------------
</TABLE>
Given market activity, the Fund had entered the fiscal year having significantly
reduced its emerging markets position from a high of over 75% in the summer of
1997 to below 60% in September 1997. During the first fiscal quarter, we further
reduced the Fund's emerging markets exposure by eliminating its Brazilian
holdings as well as a number of corporate bonds of issuers domiciled in emerging
market economies. By January 1998, the Fund had approximately 50% of its assets
in emerging markets. This exposure was continuously reduced throughout the
annual period. The remaining 1% Russian exposure was eliminated in July--well
before the default. By September 30, 1998, the Fund's emerging markets exposure
was under 20%. Over one quarter of this position was in Mexico, with the balance
in Argentina, Panama, Columbia, Bulgaria, China, and the Philippines.
Within the U.S. high yield market, the Fund was conservatively positioned
throughout the fiscal year. The Fund carried no positions in cyclical
industries, such as steel or paper, which are vulnerable to global competition
in a deflationary environment. However, the Fund was impacted by the
underperformance of some issues with negative earnings surprises, such as
Pediatric Services of America, a medical services company, and Holt Group, a
stevedoring and shipping company. Offsetting these issues were positions, such
as Allied Waste, which showed steady outperformance, as management realized on
their strategic plans and credit quality improved.
MANAGER OUTLOOK
The current economic and market environment is, in our opinion, the most
challenging since at least 1990-91. The global economy is struggling with the
effects of overcapacity in many industries and poor policy in some emerging
markets. The world is also more interconnected than ever and is dependent on
well thought out and coordinated policy responses on the part of global leaders.
Sentiment is overwhelmingly negative and market liquidity, which is normally
poor in this type of environment, has been further impaired by a systemic
unwinding of leverage. However, in many ways, the world economy as well as
individual enterprises that issue into the markets in which the Fund is invested
is stronger now than prior to past crises.
Given this backdrop, we anticipate maintaining the Fund's conservative
positioning until we see evidence of more forthright policy moves by the world's
key leaders and a return of better liquidity to the markets. In particular, we
believe that banking reform in Japan, IMF funding in the United States, and
tangible progress on fiscal reform in Brazil are all important events to watch
for. There have been encouraging signs on all these fronts recently. However,
the actions we have seen to date are still too vague to warrant a reversal of
the Fund's current strategies. Consequently, for the time being, we expect to
keep the Fund significantly underweight in the emerging markets and cyclical
industrials in favor of reform-oriented sovereign issues and well positioned,
relatively non-cyclical U.S. high yield issues.
We will, of course, continue to monitor economic conditions and how they affect
the financial markets, as we seek a high level of current income, with capital
appreciation as a secondary objective.
/s/ Greg Hopper
________________________
Greg Hopper
Portfolio Manager of the
Global High Yield Securities Portfolio
September 30, 1998
- ---------
* Performance quoted represents past performance. Investment return and
principal value will fluctuate, so that an investor's shares, when redeemed,
may be worth more or less than their original cost.
** The benchmark is calculated using the performances of three appropriate
indices in the following proportions: J.P. Morgan Emerging Markets Bond
Index: 1/3, Merrill Lynch High Yield Master Index: 1/3, and J.P. Morgan
Global Government Bond Index: 1/3. Indices 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.
4
<PAGE>
GLOBAL HIGH YIELD SECURITIES FUND
Performance Comparison
- --------------------------------------------------------------------------------
Comparison of Change in Value of a $10,000 Investment in the Global High Yield
Securities Fund and the blended JP Morgan Emerging Bond/Merrill Lynch High
Yield/JP Morgan Global Government Bond Index since December 31, 1993.
Total Return for the Period
Ended September 30, 1998
One Year Since 12/14/93*
-7.63% 8.39%**
* 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.
[CHART APPEARS HERE -- PLOT POINTS BELOW]
GLOBAL HIGH YIELD SECURITIES FUND - $14,715
JPM EMBI/ML HIGH YIELD/JPM GGB - $14,483
Global
High Yield JPM EMBI/
Securities ML High Yield/
Fund JPM GGB
DEC-93 10,000 10,000
MAR-94 9,870 9,298
JUN-94 9,711 9,224
SEP-94 10,259 9,597
DEC-94 9,694 9,381
MAR-95 9,128 9,617
JUN-95 10,207 10,577
SEP-95 10,699 10,857
DEC-95 11,496 11,436
MAR-96 11,920 11,552
JUN-96 12,346 11,964
SEP-96 13,192 12,642
DEC-96 13,953 13,231
MAR-97 14,216 13,183
JUN-97 15,171 14,082
SEP-97 15,883 14,687
DEC-97 15,409 15,138
MAR-98 15,989 15,185
JUN-98 14,715 14,483
SEP-98 14,715 14,483
Past performance is not indicative of future performance.
5
<PAGE>
GLOBAL HIGH YIELD SECURITIES FUND
Statement of Assets and Liabilities September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S><C>
Assets
Investment in Global High Yield Securities Portfolio, at Value $14,679,088
Receivable for Shares of Beneficial Interest Purchased 369
Prepaid Expenses and Other 14,196
------------
Total Assets 14,693,653
------------
Liabilities
Payable for Shares of Beneficial Interest Redeemed 10,075
Due to Bankers Trust 10,064
Accrued Expenses and Other 15,908
------------
Total Liabilities 36,047
------------
Net Assets $14,657,606
============
Composition of Net Assets
Paid-in Capital $15,787,033
Accumulated Net Realized Loss from Investment, Option, Foreign Currency and
Forward Foreign Currency Transactions (425,550)
Net Unrealized Depreciation on Investment, Option, Foreign Currency and
Forward Foreign Currency Contracts (703,877)
------------
Net Assets $14,657,606
============
Net Asset Value, Offering and Redemption Price Per Share (net assets divided by
shares outstanding) $ 9.60
============
Shares Outstanding ($0.001 par value per share, unlimited number of shares of
Beneficial interest authorized) 1,526,206
============
</TABLE>
Statement of Operations For the year ended September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S><C>
Investment Income
Income Allocated from Global High Yield Securities Portfolio, net $ 2,003,877
------------
Expenses
Administration and Services Fees 239,501
Printing and Shareholder Reports 2,824
Registration Fees 8,384
Professional Fees 12,818
Trustee Fees 3,221
Organization Expenses 1,661
Miscellaneous 4,933
------------
Total Expenses 273,342
Less Expenses Absorbed by Bankers Trust (84,263)
------------
Net Expenses 189,079
------------
Net Investment Income 1,814,798
------------
Realized and Unrealized Gain (Loss) on Investment, Option, Foreign Currency and
Forward Foreign Currency Contracts
Net Realized Gain (Loss) from:
Investment Transactions (328,918)
Option Transactions (22,550)
Foreign Currency Transactions 484
Forward Foreign Currency Transactions 89,234
Net Change in Unrealized Appreciation/Depreciation on Investment, Option,
Foreign Currency and
Forward Foreign Currency Contracts (3,358,404)
------------
Net Realized and Unrealized Loss on Investment, Option, Foreign Currency and
Forward Foreign Currency Contracts (3,620,154)
------------
Net Decrease in Net Assets from Operations $(1,805,356)
============
</TABLE>
See Notes to Financial Statements on Page 8
6
<PAGE>
GLOBAL HIGH YIELD SECURITIES FUND
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the For the
year ended year ended
September 30, 1998 September 30, 1997
------------------ ------------------
<S><C>
Increase (Decrease) in Net Assets from:
Operations
Net Investment Income $ 1,814,798 $ 1,554,745
Net Realized Gain (Loss) from Investment, Option, Foreign Currency and
Forward Foreign Currency Transactions (261,750) 1,826,728
Net Change in Unrealized Appreciation/Depreciation on Investments, Option,
Foreign Currency and Forward Foreign Currency Contracts (3,358,404) 1,005,959
------------- -------------
Net Increase (Decrease) in Net Assets from Operations (1,805,356) 4,387,432
------------- -------------
Distributions to Shareholders
Net Investment Income (1,807,333) (2,106,154)
Net Realized Gains (1,572,170) (489,931)
In excess of net realized gains (200,589) --
------------- -------------
Total Distributions (3,580,092) (2,596,085)
------------- -------------
Capital Transactions in Shares of Beneficial Interest
Proceeds from Sales of Shares 13,433,659 18,915,362
Dividend Reinvestments 908,940 475,271
Cost of Shares Redeemed (18,745,511) (16,276,633)
------------- -------------
Total Increase (Decrease) from Capital Transactions in Shares of Beneficial Interest (4,402,912) 3,114,000
------------- -------------
Total Increase (Decrease) in Net Assets (9,788,360) 4,905,347
Net Assets
Beginning of Year 24,445,966 19,540,619
------------- -------------
End of Year $ 14,657,606 $ 24,445,966
============= =============
</TABLE>
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 Global High Yield Securities Fund.
<TABLE>
<CAPTION>
For the period
December 14, 1993
For the years ended September 30, (Commencement of
------------------------------------------ Operations) to
1998 1997 1996 1995 September 30, 1994
------ ------ ------ ------ ------------------
<S><C>
Per Share Operating Performance:
Net Asset Value, Beginning of Period $12.01 $11.20 $ 9.78 $10.29 $10.00
------ ------ ------ ------ ------
Income fromInvestment Operations
Net Investment Income 0.84 0.75 0.87 0.77 0.31
Net Realized and Unrealized Gain (Loss)
on Investment, Option, Foreign Currency
and Forward Foreign Currency Contracts (1.70) 1.37 1.30 (0.41) (0.02)
------ ------ ------ ------ ------
Total Income (Loss) from Investment Operations (0.86) 2.12 2.17 0.36 0.29
------ ------ ------ ------ ------
Distributions to Shareholders
Net Investment Income (0.84) (1.06) (0.75) (0.87) --
Net Realized Gains (0.58) (0.25) -- -- --
In excess of net realized gains (0.13) -- -- -- --
------ ------ ------ ------ ------
Total Distributions (1.55) (1.31) (0.75) (0.87) --
------ ------ ------ ------ ------
Net Asset Value, End of Period $ 9.60 $12.01 $11.20 $ 9.78 $10.29
====== ====== ====== ====== ======
Total Investment Return (7.63)% 20.40% 23.31% 4.28% 3.66%*
Supplemental Data and Ratios:
Net Assets, End of Period (000s omitted) $14,658 $24,446 $19,541 $22,913 $14,738
Ratios to Average Net Assets:
Net Investment Income 7.19% 6.60% 8.04% 8.68% 5.44%*
Expenses, Including Expenses of the
Global High Yield Securities Portfolio 1.50% 1.50% 1.50% 1.74% 1.75%*
Decrease Reflected in Above Expense
Ratio Due to Absorption of Expenses by
Bankers Trust 0.73% 0.68% 1.00% 0.87% 1.08%*
</TABLE>
- ---------
* Annualized
See Notes to Financial Statements on Page 8
7
<PAGE>
GLOBAL HIGH YIELD SECURITIES 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 Global High Yield Securities 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
December 14, 1993. The Fund invests substantially all of its assets in the
Global High Yield Securities 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,
1998, 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, and should be read in
conjunction with the Fund's financial statements.
B. Investment Valuation
Valuation of securities by the Portfolio is discussed in Note 1B of the
Portfolio's Notes to Financial Statements which are included elsewhere in this
report.
C. Investment Income
The Fund's income, net of expenses, is earned daily on its investment in the
Portfolio. All of the net investment income and realized and unrealized gains
and losses from the security transactions of the Portfolio are allocated pro
rata among the investors in the Portfolio at the time of such determination.
D. Organization Expenses
Costs incurred by the Fund in connection with its organization and initial
registration are being amortized evenly over a five year period.
E. Distributions
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.
F. Federal Income Taxes
It is the Fund's policy to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute
substantially all of its taxable income to shareholders. Therefore, no federal
income tax provision is required. The Fund may periodically make
reclassifications among certain of its capital accounts as a result of
differences in the characterization and allocation of certain income and capital
gains distributions determined annually in accordance with federal tax
regulations which may differ from generally accepted accounting principles.The
Fund has deferred $425,550 in post October capital losses to the following year.
G. Other
The Trust accounts separately for the assets, liabilities, and operations of
each Fund. Expenses directly attributable to the Fund are charged to that Fund,
while expenses which are attributable to the Trust are allocated among the
Funds. Investment transactions are accounted for on the trade date basis.
Realized gains and losses are identified on the identified cost basis.
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 0.95% of the Fund's average daily net assets.
Bankers Trust has voluntarily undertaken to waive its fees and reimburse
expenses of the Fund, to the extent necessary, to limit all expenses to .75% 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.
The Trust has entered into a distribution agreement with ICCDistributors, Inc.
("ICC") under which ICC will serve as distributor for shares sold on behalf 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
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 year ended September 30, 1998.
Note 3--Shares of Beneficial Interest
At September 30, 1998, 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, 1998 September 30, 1997
------------------------- -------------------------
Shares Amount Shares Amount
---------- ------------- ---------- -------------
<S><C>
Sold 1,214,733 $ 13,433,659 1,659,669 $ 18,915,362
Reinvested 75,819 908,940 42,015 475,271
Redeemed (1,799,358) (18,745,511) (1,411,403) (16,276,633)
----------- ------------- ----------- -------------
Net Increase/(Decrease) (508,806) $ (4,402,912) 290,281 $ 3,114,000
=========== ============= =========== =============
</TABLE>
8
<PAGE>
GLOBAL HIGH YIELD SECURITIES FUND
Notes to Financial Statements
- --------------------------------------------------------------------------------
Note 4--Credit Risks
Although the Portfolio's investments are diversified, the Portfolio invests in
primarily high yield, non-investment grade debt securities issued in many of the
world's securities markets. Investments in higher yielding securities are
accompanied by a greater degree of credit risk and the risk tends to be more
sensitive to economic conditions than higher rated securities. The risk of loss
due to default by the issuer may be significantly greater for the holders of
high yielding securities because such securities are generally unsecured and are
often subordinated to other obligations of the issuer.
Note 5--Foreign Securities
The Portfolio may invest 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.
9
<PAGE>
GLOBAL HIGH YIELD SECURITIES FUND
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Board of Trustees of the BT Investment Funds and
Shareholders of Global HighYield Securities Fund:
In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
the Global High Yield Securities Fund (one of the Funds comprising BT Investment
Funds, hereafter referred to as the "Fund") at September 30, 1998, and the
results of its operations, the changes in its net assets and the financial
highlights for each of the fiscal periods presented, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at September 30, 1998 by
correspondence with the transfer agent, provide a reasonable basis for the
opinion expressed above.
PricewaterhouseCoopers LLP
Baltimore, Maryland
November 6, 1998
Tax Information (Unaudited) For the Year Ended September 30, 1998
- --------------------------------------------------------------------------------
The Fund paid long term capital gains during the year ending 9/30/98 in the
amount of $1,093,408. 59.61% of the long term capital gain distributions are
taxed at the 20% capital gains rate.
10
<PAGE>
GLOBAL HIGH YIELD SECURITIES PORTFOLIO
Schedule of Portfolio Investments September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Security Value
<S><C>
CORPORATE DEBENTURES - 65.94%
China - 1.28%
$ 500,000 Guangdong Enterprises,
8.875%, 5/22/07 (b) (g) $ 187,500
----------
Philippines - 1.67%
458,824 Bauang Private Power Corp,
10.17%, 3/15/08 (b) (g) 245,574
----------
U.S.A. - 62.99%
320,000 Allied Waste North America,
10.25%, 12/01/06 350,400
500,000 Century Communications, 0.00%, 1/15/08 237,500
360,000 Comcast Cellular Series B, 9.50%, 05/01/07 370,800
440,000 Conmed Corp, 9.00%,3/15/08 409,200
530,000 Crown Castle International Corp,
11.61%, 11/15/02 (c) 320,650
450,000 El Paso Electric Company, 8.9%, 02/01/06 496,125
600,000 Finlay Enterprises Inc., 9.00%, 5/1/08 543,000
600,000 Fresenius Medical Capital Trust II,
7.875%, 2/01/08 578,520
600,000 Jacor Communications Co., 8.75%, 6/15/07 624,000
600,000 Jones Intercable Inc., 8.875%, 4/1/07 630,000
600,000 L-3 Communications Corp, 8.50%, 5/15/08 611,250
525,000 Lenfest Communications 144A,
7.625%, 2/15/08 (b) 532,875
120,000 Mutual Life Insurance 144A,
6.57%, 8/15/99 (b) (c) 178,061
230,000 Newpark Resources Inc.,
8.625%, 12/15/07 (b) 219,650
600,000 Nextel Communications, 11.18%, 2/15/03 (c) 355,500
460,000 Niagara Mohawk Ser. H, 8.10%, 7/1/03 (c) 322,000
500,000 Playtex, 9.00%, 12/15/03 507,500
300,000 Premier Parks, Inc., 9.25%, 4/01/06 297,000
300,000 R. H. Donnelly 144A, 9.125%, 6/1/08 (b) 303,000
500,000 Revlon Consumer Products, 8.625%, 2/1/08 491,250
360,000 Sprint Spectrum L.P., 11.00%, 08/15/06 410,400
450,000 Tenet Healthcare, 8.125%, 12/01/08 (b) 457,875
----------
9,246,556
----------
Total Corporate Debentures (Cost $10,415,937) 9,679,630
----------
CORPORATE DEBT CONVERTIBLE - 1.63%
Germany - 1.63%
400,000 Impress Metal Packaging Holding,
9.875%, 5/29/07 239,600
----------
Total Corporate Debt Convertible (Cost $236,644) 239,600
----------
GOVERNMENT BONDS - 18.95%
Argentina - 1.29%
237,500 Argentina FRB, Series L,
6.1875%, 3/31/05 (e) 189,109
----------
Bulgaria - 2.01%
500,000 Bulgaria - IAB, Series PDI,
6.687%, 7/28/11 (e) 295,000
----------
Mexico - 5.24%
$1,000,000 Mexico Par, Series B, 6.250%, 12/31/19 $ 770,000
-----------
Panama - 2.53%
525,942 Panama PDI, 6.687%, 7/17/16 (d)(e) 370,789
-----------
U. S. A. - 7.88%
950,000 Treasury Note, 6.625%, 03/31/02 1,018,729
120,000 Treasury Note, 6.125%, 11/15/27 138,375
-----------
1,157,104
-----------
Total Government Bonds (Cost $2,806,492) 2,782,002
-----------
OTHER SECURITIES - 0.00%
Mexico - 0.00%
1,538,000 Mexican Value Recovery Rights (a) 0
500,000 Mexico-Ser. B Warrants (a) 0
-----------
0
-----------
U.S.A. - 0.00%
500 IHF Holdings-Ser. I Warrants 144A (a)(b) 5
-----------
Total Other Securities (Cost $0) 5
-----------
COMMON STOCK - 1.27%
Colombia - 1.27%
81,300 Celcaribe SA 144A (a)(b)(f)(g) 186,990
-----------
Total Common Stock (Cost $129,618) 186,990
-----------
SHORT TERM INSTRUMENTS - 10.08%
U.S.A. - 10.08%
1,478,786 BT Institutional Cash Management Fund,
5.39% 1,478,786
-----------
Total Short Term Instruments (Cost $1,478,786) 1,478,786
-----------
Total Investments (Cost $15,067,477) 97.87% $14,367,013
Other Assets in Excess of Liabilities 2.13% 312,088
------- -----------
Net Assets 100.00% $14,679,101
======= ===========
</TABLE>
- ----------
(a) Non-income producing security.
(b) Security exempt from registration under rule 144A of the Securities Act of
1933. This security may be resold in transactions exempt from registrations,
normally to qualified institutional buyers.
(c) Debt obligations initially issued in zero coupon form which converts to
coupon form at a specified rate and date. (Step Bond)
(d) Payment in-kind security
(e) Floating rate security
(f) Security has been fair valued by management. See footnote 1b.
(g) Illiquid security
The following abbreviations are used in the portfolio descriptions:
FRB -- Floating Rate Bond
IAB -- Interest Arrears Bond
PDI -- Past Due Interest
See Notes to Financial Statements on Pages 14 and 15
11
<PAGE>
GLOBAL HIGH YIELD SECURITIES PORTFOLIO
Statement of Assets and Liabilities September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S><C>
Assets
Investments, at value (cost of $15,067,477) $14,367,013
Cash 19,689
Interest Receivable 339,652
-----------
Total Assets 14,726,354
-----------
Liabilities
Due to Bankers Trust 22,698
Accrued Expenses and Other 24,555
-----------
Total Liabilities 47,253
-----------
Net Assets $14,679,101
===========
Composition of Net Assets
Paid-in Capital $15,379,016
Net Unrealized Depreciation on Investments, Foreign Currencies and Forward
Foreign Currency Contracts (699,915)
-----------
Net Assets $14,679,101
===========
</TABLE>
- ---------
*Includes foreign cash of $2,550 with a cost of $2,454.
Statement of Operations For the year ended September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S><C>
Investment Income
Dividends $ 104,329
Interest 2,089,016
-----------
Total Investment Income 2,193,345
-----------
Expenses
Advisory Fees 202,099
Administration and Services Fees 50,525
Professional Fees 36,288
Trustees Fees 2,711
-----------
Total Expenses 291,623
Less Expenses Absorbed by Bankers Trust (102,163)
-----------
Net Expenses 189,460
-----------
Net Investment Income 2,003,885
-----------
Realized and Unrealized Gain (Loss) on Investments, Options, Foreign Currencies
and
Forward Foreign Currency Contracts
Net Realized Gain (Loss) from:
Investment Transactions (328,918)
Option Transactions (22,550)
Foreign Currency Transactions 484
Forward Foreign Currency Transactions 89,234
Net Change in Unrealized Appreciation/Depreciation on Investments, Options,
Foreign Currencies and Forward Foreign Currency Contracts (3,358,413)
-----------
Net Realized and Unrealized Loss on Investments, Options, Foreign Currencies and
Forward Foreign Currency Contracts (3,620,163)
-----------
Net Decrease in Net Assets from Operations $(1,616,278)
===========
</TABLE>
See Notes to Financial Statements on Pages 14 and 15
12
<PAGE>
GLOBAL HIGH YIELD SECURITIES PORTFOLIO
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the For the
year ended year ended
September 30, 1998 September 30, 1997
------------------ ------------------
<S><C>
Increase in Net Assets from:
Operations
Net Investment Income $ 2,003,885 $ 1,733,585
Net Realized Gain (Loss) from Investment, Option, Foreign Currency
and Forward Foreign Currency Tranactions (261,750) 1,829,181
Net Change in Unrealized Appreciation/Depreciation on Investments, Options,
Foreign Currencies and Forward Foreign Currency Contracts (3,358,413) 1,006,745
------------- -------------
Net Increase (Decrease) in Net Assets from Operations (1,616,278) 4,569,511
------------- -------------
Capital Transactions
Proceeds from Capital Invested 14,342,229 19,438,269
Value of Capital Withdrawn (22,531,710) (19,266,075)
------------- -------------
Net Increase (Decrease) in Net Assets from Capital Transactions (8,189,481) 172,194
------------- -------------
Total Increase (Decrease) in Net Assets (9,805,759) 4,741,705
Net Assets
Beginning of Year 24,484,860 19,743,155
------------- -------------
End of Year $ 14,679,101 $ 24,484,860
============= =============
</TABLE>
Financial Highlights
- --------------------------------------------------------------------------------
Contained below are selected ratios to average net assets and other supplemental
data for the periods indicated for the Global High Yield Securities Portfolio.
<TABLE>
<CAPTION>
For the period
December 14, 1993
For the years ended September 30, (Commencement of
---------------------------------------- Operations to
1998 1997 1996 1995 September 30, 1994
------- ------- ------- ------- ------------------
<S><C>
Supplemental Data and Ratios:
Net Assets, End of Period (000s omitted) $14,679 $24,485 $19,743 $23,003 $14,729
Ratios to Average Net Assets:
Net Investment Income 7.94% 7.34% 8.78% 9.63% 6.44%*
Expenses 0.75% 0.75% 0.75% 0.75% 0.75%*
Decrease Reflected in Above Expense
Ratio Due to Absorption of Expenses by
Bankers Trust 0.40% 0.30% 0.44% 0.45% 0.59%*
Portfolio Turnover Rate 208% 139% 207% 169% 347%
</TABLE>
- ---------
* Annualized
See Notes to Financial Statements on Pages 14 and 15
13
<PAGE>
GLOBAL HIGH YIELD SECURITIES PORTFOLIO
Notes to Financial Statements
- --------------------------------------------------------------------------------
Note 1--Organization and Significant Accounting Policies
A. Organization
The Global High Yield Securities Portfolio (the "Portfolio") is registered under
the Investment Company Act of 1940 (the "Act"), as amended, as an open-end
management investment company. The Portfolio was organized on August 6, 1993 as
an unincorporated trust under the laws of New York and commenced operations on
December 14, 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 are carried at fair market value as determined by
independent pricing services at the end of each business day. Short-term debt
securities are valued at market value 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 by 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 Advisor, subject to the
seller's agreement to repurchase such securities at a mutually agreed upon
price. Securities purchased subject to repurchase agreements are deposited with
the Portfolio's custodian, and pursuant to the terms of the repurchase agreement
must have an aggregate market value greater than or equal to the repurchase
price plus accrued interest at all times. If the value of the underlying
securities falls below the value of the repurchase price plus accrued interest,
the Portfolio will require the seller to deposit additional collateral by the
next business day. If the request for additional collateral is not met, or the
seller defaults on its repurchase obligation, the Portfolio maintains the right
to sell the underlying securities at market value and may claim any resulting
loss against the seller. However, in the event of default or bankruptcy by the
seller, realization and/or retention of the collateral may be subject to legal
proceedings.
E. Foreign Currency Transactions
The books and records of the Portfolio are maintained in U.S. dollars. All
assets and liabilities initially expressed in foreign currencies are converted
into U.S. dollars at prevailing exchange rates. Purchases and sales of
investment securities, dividend and interest income, and certain expenses are
translated at the rates of exchange prevailing on the respective dates of such
transactions.
F. Forward Foreign Currency Contracts
The Portfolio may enter into forward foreign currency contracts for the purpose
of settling specific purchases or sales of securities denominated in a foreign
currency or with respect to the Portfolio's investments. The net U.S. dollar
value of foreign currency underlying all contractual commitments held by the
Portfolio and the resulting unrealized appreciation or depreciation are
determined using prevailing exchange rates. With respect to forward foreign
currency contracts, losses in excess of amounts recognized in the Statement of
Assets and Liabilities may arise due to changes in the value of the foreign
currency or if the counterparty does not perform under the contract.
G. Option Contracts
Upon the purchase of a put option or a call option by a Portfolio, the premium
paid is recorded as an investment and marked to market daily to reflect the
current market value. When a purchased option expires, the Portfolio will
realize a loss in the amount of the cost of the option. When the Portfolio
enters into a closing sale transaction, the Portfolio will realize a gain or
loss depending on whether the sale proceeds from the closing sale transaction
are greater or less than the cost of the option. When the Portfolio exercises a
put option, it realizes a gain or loss from the sale of the underlying security
and the proceeds from such sale will be decreased by the premium originally
paid. When the Portfolio exercises a call option, the cost of the security which
the Portfolio purchases upon exercise will be increased by the premium
originally paid.
H. Futures Contracts
The Portfolio may enter into financial futures contracts which are contracts to
buy a standard quantity of securities at a specified price on a future date. The
Portfolio is required to deposit either in cash or securities in an amount equal
to a certain percentage of the contract amount. Variation margin 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
The Portfolio is considered to be a Partnership under the Internal Revenue Code.
Therefore, no federal income tax provision is necessary.
J. Other
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts in the financial statements. Actual results could
differ from those estimates.
Note 2--Fees and Transactions with Affiliates
The Portfolio has entered into an Administration and Services Agreement with
Bankers Trust Company ("Bankers Trust"). Under this Administration and Services
Agreement, Bankers Trust provides administrative, custody, transfer agency and
shareholder services to the Portfolio in return for a fee computed daily and
paid monthly at an annual rate of .20% of the Portfolio's average daily net
assets.
14
<PAGE>
GLOBAL HIGH YIELD SECURITIES PORTFOLIO
Notes to Financial Statements
- --------------------------------------------------------------------------------
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 .80% of the Portfolio's
average daily net assets.
Bankers Trust has voluntarily undertaken to waive its fees and reimburse
expenses of the Portfolio, to the extent necessary, to limit all expenses to
.75% of the average daily net assets of the Portfolio.
The Portfolio may invest in the BT Institutional 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 for the year ended September 30, 1998 amounted to $60,129 and
are recorded as dividend income.
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 during each calendar quarter, 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 year
ended September 30, 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 year ended September 30, 1998, were
$46,411,101 and $52,440,120, respectively.
The tax basis of investments held at September 30, 1998 amounted to $15,067,477.
The aggregate gross unrealized appreciation for all investments was $152,620 and
the aggregate gross unrealized depreciation for all investments was $853,084.
Note 4--Credit Risks
Although the Portfolio's investments are diversified, the Portfolio invests in
primarily high yield, non-investment grade debt securities issued in many of the
world's securities markets. Investments in higher yielding securities are
accompanied by a greater degree of credit risk and the risk tends to be more
sensitive to economic conditions than higher rated securities. The risk of loss
due to default by the issuer may be significantly greater for the holders of
high yielding securities because such securities are generally unsecured and are
often subordinated to other obligations of the issuer.
Note 5--Foreign Securities
The Portfolio may invest 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.
15
<PAGE>
GLOBAL HIGH YIELD SECURITIES PORTFOLIO
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Trustees and Holders of Beneficial Interest of Global
High Yield Security Portfolio:
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Global High Yield Securities
Portfolio (hereafter referred to as the "Portfolio") at September 30, 1998, and
the results of its operations, the changes in its net assets and the financial
highlights for each of the fiscal periods presented, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Portfolio's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at September 30, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Baltimore, Maryland
November 6, 1998
16
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<PAGE>
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<PAGE>
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<PAGE>
BT INVESTMENT FUNDS
GLOBAL HIGH YIELD SECURITIES FUND
Investment Advisor and Administrator of the Portfolio
BANKERS TRUST COMPANY
130 Liberty Street
New York, NY 10006
Distributor
ICC DISTRIBUTORS, INC.
P.O. Box 7558
Portland, ME 04112-9892
Custodian and Transfer Agent
BANKERS TRUST COMPANY
130 Liberty Street
New York, NY 10006
Independent Accountants
PRICEWATERHOUSECOOPERS LLP
250 West Pratt Street
Baltimore, MD 21201
Counsel
WILLKIE FARR & GALLAGHER
787 7th Avenue
New York, NY 10019
---------------
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 report must be preceded or accompanied by a
current prospectus for the Fund.
---------------
BT Investment Global High Yield Securities CUSIP #055922777
STA478200 (9/98)
