o BT INVESTMENT FUNDS o
CAPITAL APPRECIATION FUND
SEMI-ANNUAL REPORT
MARCH o 1998
<PAGE>
Capital Appreciation Fund
Table of Contents
Letter to Shareholders 3
Capital Appreciation Fund
Statement of Assets and Liabilities 5
Statement of Operations 5
Statements of Changes in Net Assets 6
Financial Highlights 6
Notes to Financial Statements 7
Capital Appreciation Portfolio
Statement of Net Assets 8
Statement of Operations 10
Statements of Changes in Net Assets 11
Financial Highlights 11
Notes to Financial Statements 12
-----------------------
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>
Capital Appreciation Fund
Letter to Shareholders
We are pleased to present you with this semi-annual report for the Capital
Appreciation Fund, providing a review of the market, the portfolio, and our
outlook as well as a complete financial summary of the Fund's operations and a
listing of the Portfolio's holdings.
The Capital Appreciation Fund (the "Fund") had a total return of 7.57%* for the
six months ended March 31, 1998, as compared to 11.94% for the S&P 400 Midcap
Index** and 8.41% for the Lipper Growth Average***. Since its inception on March
9, 1993, the Fund was delivered a total return of 133.18% cumulatively, or
18.21% annualized, as of March 31, 1998. The Fund returned 46.33% for the year
ended March 31, 1998. For the 5-year period ended March 31, 1998, the Fund's
annualized return was 18.43%.
MARKET ACTIVITY
Overall, the six months ended March 31, 1998 were a period of significant
volatility for mid capitalization growth stocks. The last quarter of 1997 was
disappointing from a performance perspective; the first quarter of 1998 was much
improved. Here's why.
At the start of the fourth quarter of 1997, midcap growth stocks had just
experienced a five month period during which they had produced 30% plus
performance, and stocks were somewhat extended. In addition, the effects of the
Asian financial crises began to spread about this time. Midcap growth stocks
came under pressure, as U.S. investors sought both to lock in gains and to
discount the expected negative impact these crises would have on the earnings
growth of companies with significant exposure to Asia--especially the technology
stocks. Investors tended to turn their focus to large cap names and more
value-oriented stocks.
-----------------
Objective
Seeks capital growth over the long term
through investment in growth-oriented
medium-sized companies that show
growth potential. Current income is a sec-
ondary goal.++
-----------------
The new year began with a whimper, as the midcap market continued to reconcile
the events in Asia. Expectations for both fourth quarter earnings results and
first quarter earnings estimates were low. But as the first quarter progressed,
investor sentiment toward midcap growth stocks improved for a number of reasons.
First, the impact of the Asian crisis became more clear and measurable, and the
situation was not as bad as many had expected. Second, thanks to strong internal
growth, the earnings growth of many companies with international exposure was
sustained despite the scare from overseas. Third, those companies that were more
negatively impacted had lowered expectations enough that investors were no
longer as worried about the effects. And finally, what may be called the
virtuous circle of rising prices and improving sentiment boosted midcap growth
stocks' performance nicely in February and March. Relative valuation levels of
these stocks had been dramatically reduced, reaching levels even cheaper than
they were in April 1997 at which point they were at seven year lows. For all
these reasons, plus sustained strong U.S. economic conditions, few signs of
inflation, and interest rate fears at bay, midcap growth stocks performed well
for the first calendar quarter as a whole, participating with the other segments
of the stock market in a robust rally.
-----------------
Investment Instruments
Generally growth-oriented stocks of medi-
um-sized U.S. corporations and, to a less-
er extent, foreign corporations.
-----------------
INVESTMENT REVIEW
As has been our long-standing policy, we stayed true to the Fund's
growth-oriented investment style throughout both the difficult fourth quarter
and the more positive first quarter. Of course, when midcap growth stocks are in
favor, the Fund benefits. In fact, the Fund outperformed both its Lipper
category average and its benchmark during the rally of the first calendar
quarter.
Relative sector positioning was the primary factor impacting performance
throughout. For example, in the last quarter of 1997, the Fund was underweight
in the outperforming value-oriented sectors of utilities, financial, and
consumer staples and was overweight in the poorly performing sectors of
healthcare and technology. However, that same strategy worked to the Fund's
favor in the next quarter, when technology and healthcare were among the best
performing sectors, as were communications services, transportation, and
consumer cyclicals, where the Fund was also overweight. The Fund's overweight
position in energy, the only sector posting a loss during this six month period,
negatively impacted performance.
Ten Largest Stock Holdings
Compuware Corporation Royal Caribbean Cruises, Ltd.
- -------------------------------------------------------------------------------
Ace, Ltd. Ocwen Financial Corporation
- -------------------------------------------------------------------------------
Outdoor Systems, Inc. Comverse Technology, Inc.
- -------------------------------------------------------------------------------
Clear Channel TJX Companies Inc.
Communications, Inc.
- -------------------------------------------------------------------------------
General Cable Corporation Linens 'N Things, Inc.
- -------------------------------------------------------------------------------
MANAGER OUTLOOK
Going forward, we are encouraged by the environment for midcap growth stocks.
Earnings growth remains relatively robust; valuation levels are still very
attractive; and investor sentiment is positive. In general, the companies the
Fund owns are experiencing strong fundamental growth in earnings and are
expressing upbeat outlooks for the remainder of 1998. Given this scenario and
the Fund's performance during the stock market rally of the first calendar
quarter, we believe it continues to be well positioned in the midcap growth
names for the near future. Over the longer term, it has been shown that
investors will pay for reasonably priced earnings growth.
- ----------
* 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.
** The S&P 400 MidCap Index is comprised of 400 U.S. stocks chosen from the
following sectors: industries, utilities, financials, and transportation.
Indexes are unmanaged, and investments cannot be made in an index.
*** Lipper figures represent the average of the total returns reported by
all of the mutual funds designated by Lipper Analytical Services, Inc.
as falling into the respective categories indicated. These figures do not
reflect sales charges.
++ In view of the long-term capital growth objective of the Fund and the
smaller size of the companies, the risks of investing in the Fund may be
greater than the general equity markets.
3
<PAGE>
Capital Appreciation Fund
Letter to Shareholders
Diversification of Portfolio Investments
By Theme as of March 31, 1998
(percentages are based on market value)
[PIE CHART APPEARS HERE]
Stores of Value 6% Client Server Computing 6%
New Healthcare Paradigm 8% America's Changing Leisure Time 5%
Managing the Information Age 5% Returning to Home Ownership 4%
Life Sciences Revolution 4% New Consumer 6%
Our Strengthening Financial Structure 11% Consolidating America 7%
Telecommunications 13% Other 18%+
Energizing the Globe 7%
- ----------
+ Includes themes with weightings of less than 3.5%.
Still, as we have seen just in the most recent semi-annual period, returns can
be volatile in the short term, and thus it is important to remember that
investors should take a long-term view when investing in this segment of the
market. We remain disciplined in our process, and we continue to focus on
companies that offer compelling valuations relative to their growth rates. Given
the recent high volatility of the stock market, we also remain focused on
companies that have strong, consistent earnings and revenue growth.
We remain dedicated to our use of extensive fundamental research, as well as to
our thematic approach and screening process, as we seek to identify attractive
investment opportunities in unrecognized growth companies and sectors. As we
look ahead, we are particularly emphasizing our research on companies in the
telecommunications sector, as we believe many of these companies will benefit
from deregulation, consolidation, and market expansion, and on the consumer
sector, as it should benefit from strong consumer spending. Finally, we continue
to strictly adhere to our sell discipline to help mitigate risk and to use the
volatility of the marketplace to our investors' advantage by initiating or
adding to positions on weakness.
We will continue to monitor economic conditions and their effect on financial
markets, as we seek capital growth over the long term.
We value your ongoing support of the Capital Appreciation Fund and look forward
to continuing to serve your investment needs in the years ahead.
/s/ Anthony Takazawa
--------------------
Anthony Takazawa
Portfolio Manager of the
Capital Appreciation Portfolio
March 31, 1998
Performance Comparison
Comparison of Change in Value of a $10,000 Investment in the Capital
Appreciation Fund and the S&P 400 Index since March 31, 1993.
------------
Total Return for the Period
Ended March 31, 1998
Six Months Since 3/9/93*
7.57% 18.21%**
* 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-SEE PLOT POINTS BELOW]
Capital Appreciation Fund - $23,318 S&P 400 Index - $24,380
----------------------------------- -----------------------
Mar-93 $10,000 $10,000
Jun-93 10,519 10,233
Sep-93 11,838 10,747
Dec-93 11,708 11,034
Mar-94 11,409 10,614
Jun-94 10,699 10,227
Sep-94 11,728 10,920
Dec-94 12,088 10,638
Mar-95 12,857 11,498
Jun-95 14,266 12,513
Sep-95 16,813 13,734
Dec-95 16,612 13,930
Mar-96 16,786 14,788
Jun-96 18,070 15,214
Sep-96 18,890 15,657
Dec-96 18,055 16,605
Mar-97 15,919 16,358
Jun-97 18,262 18,770
Sep-97 21,655 21,779
Dec.-97 20,665 21,961
Mar-98 23,318 24,380
Past performance is not indicative of future performance.
4
Capital Appreciation Fund
Statement of Assets and Liabilities March 31, 1998 (unaudited)
<TABLE>
<S><C>
Assets
Investment in Capital Appreciation Portfolio, at Value $ 38,607,944
Receivable for Shares of Beneficial Interest Subscribed 436,880
Prepaid Expenses and Other 13,912
---------------
Total Assets 39,058,736
---------------
Liabilities
Payable for Shares of Beneficial Interest Redeemed 152,478
Due to Bankers Trust 18,352
Accrued Expenses 13,016
---------------
Total Liabilities 183,846
---------------
Net Assets $ 38,874,890
===============
Composition of Net Assets
Paid-in Capital $ 26,260,145
Undistributed Net Investment Loss (150,907)
Undistributed Net Realized Gain from Investment Transactions 2,713,871
Net Unrealized Appreciation on Investments 10,051,781
---------------
Net Assets $ 38,874,890
===============
Net Asset Value, Offering and Redemption Price Per Share (net assets divided by shares outstanding) $ 13.82
===============
Shares Outstanding ($0.001 par value per share, unlimited number of shares of beneficial interest authorized) 2,813,060
===============
</TABLE>
Statement of Operations For the six months ended March 31, 1998 (unaudited)
<TABLE>
<S><C>
Investment Income
Expenses in Excess of Income Allocated from Capital Appreciation Portfolio, net $ (11,795)
---------------
Expenses
Administration and Services Fees 139,212
Registration Fees 5,397
Printing and Shareholder Reports 7,184
Professional Fees 4,281
Trustees Fees 1,525
Miscellaneous 2,423
---------------
Total Expenses 160,022
Less Expenses Absorbed by Bankers Trust (20,910)
---------------
Net Expenses 139,112
---------------
Expenses in Excess of Income (150,907)
---------------
Realized and Unrealized Gain (Loss) on Investment
Net Realized Gain from Investment Transactions 4,380,471
Net Change in Unrealized Appreciation/Depreciation on Investment (1,939,672)
---------------
Net Realized and Unrealized Gain on Investment 2,440,799
---------------
Net Increase in Net Assets from Operations $ 2,289,892
===============
</TABLE>
See Notes to Financial Statements on Page 7
5
<PAGE>
Capital Appreciation 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
Expenses in Excess of Income $ (150,907) $ (400,252)
Net Realized Gain from Investment Transactions 4,380,471 9,741,388
Net Change in Unrealized Appreciation/Depreciation on Investments (1,939,672) (4,951,199)
--------------- ---------------
Net Increase in Net Assets from Operations 2,289,892 4,389,937
--------------- ---------------
Distributions to Shareholders
Net Realized Gain from Investment Transactions (7,936,408) (11,135,789)
--------------- ---------------
Capital Transactions in Shares of Beneficial Interest
Proceeds from Sales of Shares 53,693,330 18,537,543
Dividend Reinvestments 4,263,958 6,064,050
Cost of Shares Redeemed (62,438,272) (36,238,151)
--------------- ---------------
Net Decrease from Capital Transactions in Shares of Beneficial Interest (4,480,984) (11,636,558)
--------------- ---------------
Total Decrease in Net Assets (10,127,500) (18,382,410)
Net Assets
Beginning of Period 49,002,390 67,384,800
--------------- ---------------
End of Period (Including Undistributed Net Investment Income (Loss) of (150,907)
and -0-, respectively) $ 38,874,890 $ 49,002,390
=============== ===============
</TABLE>
Financial Highlights
Contained below are selected data for a share outstanding, total investment
return, other supplemental data and ratios to average net assets for the periods
indicated for the Capital Appreciation Fund.
<TABLE>
<CAPTION>
For the period
March 9, 1993
For the six For the For the For the period For the (Commencement
months ended year ended year ended January 1, 1995 year ended of operations)
March 31, Sept. 30, Sept. 30, to Sept. 30, Dec. 31, to December 31,
1998+ 1997 1996 1995** 1994 1993
------------ ---------- ---------- -------------- ---------- -------------
<S><C>
Per Share Operating Performance:
Net Asset Value, Beginning of Period $ 15.72 $ 16.79 $ 16.83 $ 12.10 $ 11.72 $ 10.00
------- ------- ------- ------- ------- -------
Income (Loss) from Investment Operations
Expenses in Excess of Income (0.05) (0.13) (0.10) (0.07) (0.04) (0.01)
Net Realized and Unrealized Gain from
Investment Transactions 0.79 2.13 1.89 4.80 0.42 1.73
------- ------- ------- ------- ------- -------
Total Income from Investment Operations 0.74 2.00 1.79 4.73 0.38 1.72
------- ------- ------- ------- ------- -------
Distributions to Shareholders
Net Realized Gain from Investment
Transactions (2.64) (3.07) (1.83) -- -- --
------- ------- ------- ------- ------- -------
Net Asset Value, End of Period $ 13.82 $ 15.72 $ 16.79 $ 16.83 $ 12.10 $ 11.72
======= ======= ======= ======= ======= =======
Total Investment Return 7.57% 14.64% 12.35% 39.09% 3.24% 21.54%
Supplemental Data and Ratios:
Net Assets, End of Period (000s omitted) $38,875 $49,002 $67,385 $57,380 $42,737 $17,573
Ratios to Average Net Assets:
Expenses in Excess of Income (0.71)%* (0.77)% (0.66)% (0.65)%* (0.57)% (0.23)%*
Expenses, Including Expenses of the
Capital Appreciation Portfolio 1.25%* 1.25% 1.25% 1.25%* 1.25% 1.25%*
Decrease Reflected in Above Expense
Ratio Due to Absorption of Expenses
by Bankers Trust 0.30%* 0.29% 0.26% 0.32%* 0.54% 0.74%*
</TABLE>
- ------------
+ Unaudited.
* Annualized
** The Board of Trustees approved the change of the fiscal year end from
December 31 to September 30.
See Notes to Financial Statements on Page 7
6
<PAGE>
Capital Appreciation 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 Capital Appreciation Fund (the "Fund") is
one of the funds offered to investors by the Trust. The Fund commenced
operations and began offering shares of beneficial interest on March 9, 1993.
The Fund invests substantially all of its assets in the Capital Appreciation
Portfolio (the "Portfolio"). The Portfolio is an open-end management investment
company registered under the Act. The Fund seeks to achieve its investment
objective by investing all of its investable assets in the Portfolio. The value
of such investment in the Portfolio reflects the Fund's proportionate interest
in the net assets of the Portfolio. At March 31, 1998, the Fund's investment was
approximately 100% 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 earns income, net of expenses, daily on its investment in the Portfolio
and is recorded on the accrual basis. All of the net investment income (loss)
and realized and unrealized gains and losses from the security transactions of
the Portfolio are allocated pro rata among the investors in the Portfolio at the
time of such determination.
C. Dividends
It is the Fund's policy to declare and distribute dividends quarterly to
shareholders from net investment income, if any. Dividends and distributions
payable to shareholders are recorded by the Fund on the ex-dividend date.
Distributions of net realized short-term and long-term capital gains, if any,
earned by the Fund will be made annually to the extent they are not offset by
any capital loss carryforwards.
D. Federal Income Taxes
It is the Fund's policy to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and distribute substantially
all of its taxable income to shareholders. Therefore, no federal income tax
provision is required. The Fund may periodically make reclassifications among
certain of its capital accounts as a result of the timing and characterization
of certain income and capital gains distributions determined annually in
accordance with federal tax regulations which may differ from generally accepted
accounting principles.
E. Other
The Trust accounts separately for the assets, liabilities, and operations of the
Fund. Expenses directly attributable to the Fund are charged to that Fund, while
expenses which are attributable to all of the Trust's funds are allocated among
them.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts in the financial statements. Actual results could
differ from those estimates.
Note 2--Fees and Transactions with Affiliates
The Fund has entered into an Administration and Services Agreement with Bankers
Trust Company ("Bankers Trust"). Under this Administration and Services
agreement, Bankers Trust provides administrative, custody, transfer agency and
shareholder services to the Fund in return for a fee computed daily and paid
monthly at an annual rate of .65% of the Fund's average daily net assets.
Amounts owed under the Administration and Services Agreement amounted to
$18,352, net of reimbursable expenses of $3,465 at 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 .65% of
the average daily net assets of the Fund, excluding expenses of the Portfolio
and 1.25% 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 $20,910.
Certain trustees and officers of the Fund are also directors, officers and/or
employees of Edgewood. None of the trustees so affiliated received compensation
for services as trustee of the Fund. Similarly, none of the Fund's officers
received compensation from the Fund.
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 calendar quarter basis
and apportioned equally amongst 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--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 ended For the
March 31, 1998 year ended
(Unaudited) September 30, 1997
-------------------------- ------------------------
Shares Amount Shares Amount
---------- ----------- ---------- -----------
Sold 3,986,698 $ 53,693,329 1,304,558 $ 18,537,543
Reinvested 361,352 4,263,959 425,141 6,064,050
Redeemed (4,652,520) (62,438,272) (2,625,585) (36,238,151)
----------- ------------- ---------- -------------
Net Increase (Decrease) (304,470) $ (4,480,984) (895,886) $ (11,636,558)
=========== ============= ========== =============
7
<PAGE>
Capital Appreciation Portfolio
Statement of Net Assets March 31, 1998 (unaudited)
Shares Description Value
- ------ ----------- -----
COMMON STOCK - 97.77%
America's Changing Leisure Time - 4.88%
11,800 Avis Rent A Car, Inc.* $ 382,762
10,300 Royal Caribbean Cruises, Ltd. 721,644
9,100 Ryanair Holdings PLC - ADR 336,700
9,800 Starbucks Corporation* 444,063
-----------
1,885,169
-----------
America's Educational Crisis - 1.55%
12,700 Sylvan Learning Systems, Inc.* 598,488
-----------
America's Industrial Renaissance - 0.97%
8,500 Sunbeam Corporation 374,531
-----------
Client Server Computing - 5.76%
20,656 Compuware Corporation * 1,019,890
5,750 Network Associates, Inc. * 380,938
13,000 Parametric Technology Company * 433,063
15,100 Platinum Technology, Inc. * 388,825
-----------
2,222,716
-----------
Consolidating America - 7.30%
4,700 Chancellor Media Corporation * 215,612
8,000 Clear Channel Communications, Inc. * 784,000
7,500 MSC Industrial Direct Co., Inc. * 406,406
23,123 Outdoor Systems, Inc. * 810,750
23,100 United Rentals, Inc. * 600,600
-----------
2,817,368
-----------
Energizing the Globe - 7.23%
14,868 BJ Services Company * 541,752
8,924 Cooper Cameron Corporation * 538,787
28,500 Global Industries Ltd. * 580,688
18,400 R&B Falcon Corporation * 545,100
22,800 Varco International, Inc. * 587,100
-----------
2,793,427
-----------
Environmental Crisis - 3.34%
17,200 Allied Waste Industries, Inc. * 429,463
10,300 American Disposal Services, Inc. * 388,825
15,300 Earth Shell Corporation * 273,487
4,400 USA Waste Services, Inc. * 196,075
-----------
1,287,850
-----------
Interactive Media - 2.46%
10,700 Snyder Communications, Inc.* 501,562
13,600 True North Communications Inc. 448,800
-----------
950,362
-----------
Life on the Net - 3.49%
6,000 America Online, Inc. * 409,875
16,800 E*TRADE Group, Inc. * 418,950
11,185 Sterling Commerce, Inc. * 518,704
-----------
1,347,529
-----------
Life Sciences Revolution - 4.43 %
9,482 Elan Corporation PLC - ADR * 612,774
25,400 Mylan Laboratories Inc. 584,200
14,300 Watson Pharmaceuticals, Inc. * 514,800
-----------
1,711,774
-----------
Shares Description Value
- ------ ----------- -----
Managing the Information Age - 5.49%
8,500 Cambridge Technology Partners, Inc. * $ 421,281
17,500 Checkfree Holdings Corporation * 387,188
8,500 Computer Horizons Corporation * 427,125
13,000 Concord EFS, Inc. * 449,313
7,700 Keane, Inc. * 435,050
-----------
2,119,957
-----------
New Consumer - 5.87%
15,500 International Home Foods, Inc. * 515,375
15,000 Keebler Foods Company * 450,000
17,000 Proffitt's, Inc. * 616,250
15,100 TJX Companies, Inc. 683,275
-----------
2,264,900
-----------
New Health Care Paradigm - 7.79%
10,800 Arterial Vascular Engineering, Inc. * 395,550
12,900 Concentra Managed Care, Inc. * 396,675
10,100 HBO & Company 609,787
13,900 Henry Schein, Inc. * 576,850
10,500 McKesson Corporation 606,375
5,700 Safeskin Corporation * 421,087
-----------
3,006,324
-----------
Our Strengthening Financial Structure - 10.81 %
23,400 Ace, Ltd. 881,887
9,200 The FINOVA Group Inc. 541,650
6,800 Fremont General Corporation 399,925
5,900 Life Re Corporation 435,125
8,100 Mercury General Corporation 506,756
10,100 Newcourt Credit Group, Inc. 505,000
25,600 Ocwen Financial Corporation * 710,400
7,400 Waddell & Reed Financial, Inc. * 192,400
-----------
4,173,143
-----------
Productivity Enhancement - 2.39 %
11,100 Saville Systems PLC - ADR * 568,875
21,700 Sensormatic Electronics Corporation 355,337
-----------
924,212
-----------
Return to Home Ownership - 4.15%
7,000 Ethan Allen Interiors, Inc. 418,250
14,700 Lennar Corporation 506,231
12,300 Linens 'N Things, Inc. * 675,731
-----------
1,600,212
-----------
Stores of Value - 6.09%
8,737 Consolidated Stores Corporation * 375,145
11,300 Family Dollar Stores, Inc. 429,400
10,600 Knoll, Inc. * 408,763
35,600 PETsMART, Inc.* 380,475
10,800 Stage Stores, Inc. * 557,550
5,500 Steelcase, Inc. - Class A * 200,750
-----------
2,352,083
-----------
See Notes to Financial Statements on Pages 12 and 13
8
<PAGE>
Capital Appreciation Portfolio
Statement of Net Assets March 31, 1998 (unaudited)
Shares Description Value
- ------ ----------- -----
Telecommunications - 13.28%
5,400 Ascend Communications, Inc. * $ 204,525
7,300 Bay Networks, Inc. * 198,012
6,900 ClENA Corporation* 294,113
14,100 Comverse Technology, Inc. * 689,138
12,600 Frontier Corporation . 410,288
16,400 General Cable Corporation 744,150
4,600 Intermedia Communications, Inc. * 366,275
13,400 Nextel Communications, Inc. * 452,250
7,000 Pacific Gateway Exchange, Inc. * 400,750
10,900 Premiere Technologies, Inc. * 377,413
10,300 Qwest Communications International Inc. * 400,413
13,800 WinStar Communications, Inc. * 589,950
-----------
5,127,277
-----------
The Ubiquitous Semiconductor - 0.49%
5,200 Maxim Integrated Products, Inc. * 189,475
-----------
Total Common Stock (Cost $27,544,209) 37,746,797
-----------
Shares Description Value
- ------ ----------- -----
PREFERRED STOCK CONVERTIBLE - 1.49%
Energizing the Globe - 1.49%
7,200 AES Trust I-Series A, 5.375%, 3/31/27
(Cost $360,000) $ 575,100
-----------
Total Investments (Cost $27,904,209) 99.26% 38,321,897
Other Assets Less Liabilities 0.74% 285,269
------ -----------
Total Net Assets 100.00% $38,607,166
====== ===========
- ----------
* Non-Income Producing Security
The following abbreviation is used in portfolio descriptions:
ADR -- American Depository Receipt
See Notes to Financial Statements on Pages 12 and 13
9
<PAGE>
Capital Appreciation Portfolio
Statement of Operations For the six months ended March 31, 1998 (unaudited)
<TABLE>
<S><C>
Investment Income
Dividends $ 63,672
Interest 53,473
---------------
Total Investment Income 117,145
---------------
Expenses
Advisory Fees 139,686
Administration and Services Fees 24,357
Professional Fees 8,683
Trustees Fees 1,001
Miscellaneous 291
---------------
Total Expenses 174,018
Less Expenses Absorbed by Bankers Trust (44,277)
---------------
Net Expenses 129,741
---------------
Expenses in Excess of Income (12,596)
---------------
Realized and Unrealized Gain (Loss) on Investments
Net Realized Gain from Investment Transactions 4,380,471
Net Change in Unrealized Appreciation/Depreciation on Investments (1,939,672)
---------------
Net Realized and Unrealized Gain on Investments 2,440,799
---------------
Net Increase in Net Assets from Operations $ 2,428,203
===============
</TABLE>
See Notes to Financial Statements on Pages 12 and 13
10
<PAGE>
Capital Appreciation Portfolio
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
Expenses in Excess of Income $ (12,596) $ (61,546)
Net Realized Gain from Investment Transactions 4,380,471 9,773,379
Net Change in Unrealized Appreciation/Depreciation on Investments (1,939,672) (2,669,027)
--------------- ---------------
Net Increase in Net Assets from Operations 2,428,203 7,042,806
--------------- ---------------
Capital Transactions
Proceeds from Capital Invested 57,585,490 24,591,506
Value of Capital Withdrawn (70,378,306) (51,048,028)
--------------- ---------------
Net Decrease in Net Assets from Capital Transactions (12,792,816) (26,456,522)
--------------- ---------------
Total Decrease in Net Assets (10,364,613) (19,413,716)
Net Assets
Beginning of Period 48,971,779 68,385,495
--------------- ---------------
End of Period $ 38,607,166 $ 48,971,779
=============== ===============
</TABLE>
Financial Highlights
Contained below are selected supplemental data and ratios to average net assets
for the periods indicated for the Capital Appreciation Portfolio.
<TABLE>
<CAPTION>
For the six For the For the For the period For the
months ended year ended year ended January 1, 1995 year ended
March 31, Sept. 30, Sept. 30, to Sept. 30, Dec. 31,
1998+ 1997 1996 1995++ 1994
------------ ---------- ---------- --------------- -----------
<S><C>
Supplemental Data and Ratios:
Net Assets, End of Period (000s omitted) $38,607 $48,972 $68,385 $149,888 $73,634
Ratios to Average Net Assets:
Net Investment Income/(Expenses
in Excess of Income) (0.06)%* (0.12)% (0.01)% 0.01%* 0.08%
Expenses 0.60%* 0.60% 0.60% 0.60%* 0.60%
Decrease Reflected in Above Expense Ratio Due
to Absorption of Expenses by Bankers Trust 0.21%* 0.21% 0.17% 0.18%* 0.23%
Portfolio Turnover Rate 82% 167% 271% 125% 157%
</TABLE>
- ----------
+ Unaudited
++ The Board of Trustees approved the change of the fiscal year end from
December 31 to September 30.
* Annualized
** For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for security trades on
which commissions are charged.
See Notes to Financial Statements on Pages 12 and 13
11
<PAGE>
Capital Appreciation Portfolio
Notes to Financial Statements (unaudited)
Note 1--Organization and Significant Accounting Policies
A. Organization
The Capital Appreciation Portfolio (the "Portfolio") is registered under the
Investment Company Act of 1940 (the "Act"), as amended, as an open-end
management investment company. The Portfolio was organized on October 28, 1992,
as an unincorporated trust under the laws of New York and commenced operations
on March 9, 1993. The Declaration of Trust permits the Board of Trustees (the
"Trustees") to issue beneficial interests in the Portfolio.
B. Security Valuation
The Portfolio's investments listed or traded on National Stock Exchanges or
other domestic or foreign exchanges are valued based on the closing price of a
security traded on that exchange prior to the time when the Portfolio assets are
valued. Short-term obligations with remaining maturities of 60 days or less are
valued at amortized cost. Other short-term debt securities are valued on a
mark-to-market basis until such time as they reach a remaining maturity of 60
days, whereupon they will be valued at amortized cost using their value on the
61st day. All other securities and other assets are valued at their fair value
as determined in good faith under procedures established by and under the
general supervision of the Trustees.
C. Security Transactions and Investment Income
Security transactions are accounted for on a trade date basis. Dividend income
is recorded on the ex-dividend date. Interest income is recorded on the accrual
basis and includes amortization of premium and discount on investments. Realized
gains and losses from securities transactions are recorded on the identified
cost basis.
All of the net investment income and realized and unrealized gains and losses
from the securities transactions of the Portfolio are allocated pro rata among
the investors in the Portfolio at the time of such determination.
D. Repurchase Agreements
The Portfolio may enter into repurchase agreements with financial institutions
deemed to be creditworthy by the Portfolio's Investment Adviser, subject to the
seller's agreement to repurchase such securities at a mutually agreed upon
price. Securities purchased subject to repurchase agreements are deposited with
the Portfolio's custodian and pursuant to the terms of the repurchase agreement
must have an aggregate market value greater than or equal to the repurchase
price plus accrued interest at all times. If the value of the underlying
securities falls below the value of the repurchase price plus accrued interest,
the Portfolio will require the seller to deposit additional collateral by the
next business day. If the request for additional collateral is not met, or the
seller defaults on its repurchase obligation, the Portfolio maintains the right
to sell the underlying securities at market value and may claim any resulting
loss against the seller. However, in the event of default or bankruptcy by the
seller, realization and/or retention of the collateral may be subject to legal
proceedings.
E. Federal Income Taxes
It is the Portfolio's policy to comply with the requirements of the Internal
Revenue Code. Therefore, no federal income tax provision is required.
F. Other
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts in the financial statements. Actual results could
differ from those estimates.
Note 2--Fees and Transactions with Affiliates
The Portfolio has entered into an Administration and Services Agreement with
Bankers Trust Company ("Bankers Trust"). Under this Administration and Services
agreement, Bankers Trust provides administrative, custody, transfer agency and
shareholder services to the Portfolio in return for a fee computed daily and
paid monthly at an annual rate of .10% of the Portfolio's average daily net
assets. Amounts owed under the Administration and Services Agreement amounted to
$3,359 at March 31, 1998.
The Portfolio has entered into an Advisory Agreement with Bankers Trust. Under
this Advisory Agreement, Bankers Trust manages the Portfolio in accordance with
the Portfolio's investment objective and stated investment policies in return
for a fee computed daily and paid monthly at an annual rate of .65% of the
Portfolio's average daily net assets. Accrued Advisory Fees amounted to $16,013
net of reimbursable expenses of $5,821 at March 31, 1998.
Bankers Trust has voluntarily undertaken to waive its fees and reimburse
expenses of the Portfolio, to the extent necessary, to limit all expenses to
.60% of the average daily net assets of the Portfolio. For the six months ended
March 31, 1998, expenses of the Portfolio have been reduced by $44,277.
Certain officers of the Portfolio are also directors, officers and/or employees
of Edgewood Services, Inc. None of the officers so affiliated received
compensation for services as officers 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 as of March 31, 1998 amounted to $52,826 and are included in
interest 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 commitment fee of .07% per annum on the average
daily amount of the available commitment is payable on a calendar quarter basis,
and apportioned equally amongst 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.
12
<PAGE>
Capital Appreciation Portfolio
Notes to Financial Statements (unaudited)
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
$33,899,921 and $45,041,377, respectively. Additionally, at March 31, 1998
payable for securities purchased amounted to $162,021.
The tax basis of investments held at March 31, 1998, was $27,971,620. The
aggregate gross unrealized appreciation for all investments was $10,701,050 and
the aggregate gross unrealized depreciation for all investments was $350,773.
13
<PAGE>
This page intentionally left blank.
14
<PAGE>
This page intentionally left blank.
15
<PAGE>
BT INVESTMENT FUNDS
CAPITAL APPRECIATION 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 of the Fund.
-----------------------------
STA465100 (5/98)
