O BT INVESTMENT FUNDS O
CAPITAL APPRECIATION FUND
ANNUAL REPORT
SEPTEMBER O 1998
<PAGE>
CAPITAL APPRECIATION FUND
Table of Contents
Letter to Shareholders 3
Capital Appreciation 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 9
Tax Information 9
Capital Appreciation Portfolio
Schedule of Portfolio Investments 10
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 15
-------------------
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>
CAPITAL APPRECIATION FUND
Letter to Shareholders
We are pleased to present you with this annual report for the Capital
Appreciation 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
Overall, the twelve months ended September 30, 1998 were a period of significant
volatility for mid capitalization growth stocks. Equities in general were on a
roller coaster during the year, as concerns roiling the markets in the first
half only heightened in the second. The midcap sector in particular lagged its
large cap brethren, but outperformed the small cap stocks.
At the start of the fourth quarter of 1997, midcap growth stocks were somewhat
extended, following a five month period during which they had produced 30% plus
performance. The effects of the Asian financial crises began to spread. 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.
As the first quarter of 1998 progressed, investor sentiment toward midcap growth
stocks improved for a number of reasons:
o The impact of the Asian crisis became more clear, and the situation did not
appear to be as bad as many had expected.
o Thanks to strong internal growth, the earnings growth of many companies with
international exposure was sustained despite the scare from overseas.
o Those companies that were more negatively impacted had lowered expectations
enough that investors were no longer as worried about the effects.
o Relative valuations of midcap stocks had been dramatically reduced, reaching
levels even cheaper than they were in April 1997 at which point they were at
seven-year lows.
o What may be called the virtuous circle of rising prices and improving
sentiment boosted midcap growth stocks' performance.
For all these reasons, plus sustained strong U.S. economic conditions, few signs
of inflation, and interest rate fears at bay, midcap growth stocks participated
with other segments of the stock market in a robust rally.
Renewed fears of a Federal Reserve Board interest rate increase and continued
financial troubles in Asian countries turned investor sentiment negative and
drove the market lower as the second calendar quarter progressed. There was a
clear bias toward liquidity and thus larger cap stocks. Ironically, the earnings
growth outlook for larger cap stocks was reduced during the first half of the
calendar year, creating a notable gap as compared to the still robust earnings
growth outlook for many smaller, emerging growth companies. The already
compelling valuation gap continued to widen.
The third calendar quarter witnessed a continuation of market volatility,
highlighted by several factors.
o Russia's financial collapse and fresh concerns of contagion to Latin America
from Asia's ongoing financial crisis were added to investors' list of
troublesome events.
o There was renewed focus on slowing growth in U.S. corporate earnings and in
the overall economy, as well-publicized problems in high technology and basic
industries spread to major global consumer companies, such as Coca Cola and
Gillette.
o Acknowledging the weakening global environment and its potential impact on the
U.S. economy, the Federal Reserve Board lowered the fed funds rate by 0.25% on
September 29th and now seems focused on preventing a credit crunch as seen
earlier in the decade.
o News of major U.S. and European financial institutions' direct exposure to
emerging markets and their secondary exposure to hedge funds that aggressively
place leverage bets abroad began to spread.
In all, investor sentiment, punctuated by fear and uncertainty, kept a premium
on larger caps' liquidity and perceived safety through July. In August, the
larger caps finally succumbed to the negative sentiment, bringing all of the
market sectors down with them. This ultimately set the market up for a
short-term relief rally in September.
Ten Largest Stock Holdings
America Online, Inc. Ace, Ltd.
Clear Channel Elan Corporation plc-ADR
Communications, Inc.
McKesson Corporation Compuware Corporation
Watson Pharmaceuticals, Inc. Outdoor Systems, Inc.
At Home Corporation Global Crossing, Ltd.
INVESTMENT REVIEW
While the Fund did outperform its category average for the twelve month period,
it was still hampered by a negative investor sentiment toward emerging growth
stocks in general. We stayed true to the Fund's growth-oriented investment style
throughout, as has been our long-standing policy. Of course, when midcap growth
stocks are in favor, as was the case in the first calendar quarter, the Fund
benefits. It is well worth noting that strong specific stock selection and
sector positioning drove the Fund's outperformance not only in the first
calendar quarter, but also in the second, even as investor sentiment was
reversing yet again.
3
<PAGE>
CAPITAL APPRECIATION FUND
Letter to Shareholders (continued)
More specifically, 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.
<TABLE>
<CAPTION>
Periods ended September 30, 1998 Cumulative Total Returns Average Annual Total Returns
- -------------------------------------------------------------------------------------------------------------
Past 1 Past 3 Past 5 Since Past 1 Past 3 Past 5 Since
year years years inception year years years inception
- -------------------------------------------------------------------------------------------------------------
<S><C>
BT Investment Capital
Appreciation Fund* -11.42% 14.09% 62.03% 92.01% -11.42% 4.49% 10.13% 12.45%
(inception 3/9/93)
S&P 400 Midcap Index** - 6.07% 48.96% 90.35% 104.60% - 6.07% 14.21% 13.74% 13.68%
Lipper MidCap Average*** -11.95% 30.71% 67.42% 84.42% -11.95% 9.10% 10.62% 11.52%
</TABLE>
In the second half of the fiscal year, the equity sector roller coaster
continued. The Fund maintained an overweight position in three of the four best
performing sectors in each of the last two quarters-transportation, technology,
and consumer cyclicals in the June 30th quarter; communications services,
technology, and health care in the September 30th quarter. Energy continued to
be a drag on relative performance in the quarter ended June 30th, but moving to
an underweight position in this sector benefited the Fund in the quarter ended
September 30th.
MANAGER OUTLOOK
Although we expect future periods of volatility in the marketplace while global
economic events run their course, there have been several developments in the
last few weeks that indicate an improving investment outlook. These include
easing of monetary policy by the U.S. Federal Reserve Board, some progress on
Japanese bank reform, and a slight reversal of the recent credit crunch. We also
remain optimistic regarding emerging growth stocks in general. Midcap
fundamentals remain strong, earnings growth superior, and relative valuations
attractive. In particular, the companies in the Fund's portfolio are, overall,
experiencing strong fundamental growth in earnings, are largely reliant upon the
domestic economy for growth, and are expressing upbeat outlooks for the coming
year.
Over the longer term, it has been shown that investors will pay for reasonably
priced earnings growth. It is important to remember that investors should take a
long-term view when investing in this segment of the market, as returns can be
volatile in the short term.
Given the recent high volatility in the stock market, it is also important to
keep in mind that at Bankers Trust we remain disciplined in our process, and we
continue to:
o focus on companies that offer compelling valuations relative to
their growth rates
o focus on companies that have strong, consistent earnings and revenue growth
o use extensive fundamental research--as well as our thematic approach and
screening process--to identify attractive investment opportunities in
unrecognized growth companies and sectors o strictly adhere to our sell
discipline to help mitigate risk, and
o use the volatility of the marketplace to our investors' advantage by
initiating or adding to positions of weakness.
We will continue to monitor economic conditions and their effect on financial
markets, as we seek capital growth over the long term.
/s/ Anthony Takazawa
____________________
Anthony Takazawa
Portfolio Manager of the
Capital Appreciation 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 S&P 400 Midcap Index consists of 400 domestic stocks chosen for market
size, liquidity and industry group representation. 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>
CAPITAL APPRECIATION FUND
Letter to Shareholders
Diversification of Portfolio Investments
By Theme as of September 30, 1998
(percentages are based on market value)
[PIE CHART APPEARS HERE -- SEE PERCENTAGES BELOW]
Life on the Net 7% Client Server Computing 6%
Energizing the Globe 4% New Consumer 4%
New Healthcare Paradigm 9% Consolidating
America 9%
Managing the Information
Age 5% Money Market Fund 5%
Other 7%+
Life Sciences Revolution 10%
Environmental Crisis 3%
Our Strengthening Financial
Structure 10% Interactive Media 6%
Telecommunications 9% Stores of Values 3%
The Ubiquitous Semiconductor 3%
- --------------
+ Includes themes with weightings of less than 3%.
Performance Comparison
Comparison of Change in
Value of a $10,000 Investment
in the Capital Appreciation
Fund and the S&P 400 Index
since March 31, 1993.
- --------------------------------------
Total Return for the Period
Ended September 30, 1998
One Year Five Year Since 3/9/93*
-11.42% 10.13%** 12.45%**
* 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 - $19,201 S&P 400 INDEX - $20,460
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
JUN-98 19,201 20,460
SEP-98 19,201 20,460
Past performance is not indicative of future performance.
5
<PAGE>
CAPITAL APPRECIATION FUND
Statement of Assets and Liabilities September 30, 1998
<TABLE>
<S><C>
Assets
Investment in Capital Appreciation Portfolio, at Value $25,689,303
Prepaid Expenses and Other 6,410
-----------
Total Assets 25,695,713
-----------
Liabilities
Due to Bankers Trust 13,147
Payable for Fund Shares Redeemed 168,717
Accrued Expenses 17,113
-----------
Total Liabilities 198,977
-----------
Net Assets $25,496,736
===========
Composition of Net Assets
Paid-in Capital $19,079,905
Undistributed Net Realized Gain from Investment Transactions 2,895,731
Net Unrealized Appreciation on Investment 3,521,100
-----------
Net Assets $25,496,736
===========
Net Asset Value, Offering and Redemption Price Per Share (net assets divided by shares outstanding) $ 11.38
===========
Shares Outstanding ($0.001 par value per share, unlimited number of shares of beneficial interest authorized) 2,240,182
===========
</TABLE>
Statement of Operations For the year ended September 30, 1998
<TABLE>
<S><C>
Investment Income
Expenses in Excess of Income Allocated from Capital Appreciation Portfolio, net $ (19,921)
-----------
Expenses
Administration and Services Fees 252,297
Printing and Shareholder Reports 15,803
Professional Fees 15,771
Registration Fees 6,849
Trustees Fees 2,967
Miscellaneous 7,272
-----------
Total Expenses 300,959
Less Expenses Absorbed by Bankers Trust (48,662)
-----------
Net Expenses 252,297
-----------
Expenses in Excess of Investment Income (272,218)
-----------
Realized and Unrealized Gain (Loss) on Investment
Net Realized Gain from Investment Transactions 4,677,566
Net Change in Unrealized Appreciation/Depreciation on Investment (8,470,353)
-----------
Net Realized and Unrealized Loss on Investment (3,792,787)
-----------
Net Decrease in Net Assets from Operations $(4,065,005)
===========
</TABLE>
See Notes to Financial Statements on Page 8
6
<PAGE>
CAPITAL APPRECIATION 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
Expenses in Excess of Investment Income $ (272,218) $ (400,252)
Net Realized Gain from Investment Transactions 4,677,566 9,741,388
Net Change in Unrealized Appreciation/Depreciation on Investment (8,470,353) (4,951,199)
------------- -------------
Net Increase (Decrease) in Net Assets from Operations (4,065,005) 4,389,937
------------- -------------
Distributions to Shareholders
Net Realized Gain from Investment Transactions (7,936,407) (11,135,789)
------------- -------------
Capital Transactions in Shares of Beneficial Interest
Proceeds from Sales of Shares 57,990,982 18,537,543
Dividend Reinvestments 4,263,959 6,064,050
Cost of Shares Redeemed (73,759,183) (36,238,151)
------------- -------------
Net Decrease from Capital Transactions in Shares of Beneficial Interest (11,504,242) (11,636,558)
------------- -------------
Total Decrease in Net Assets (23,505,654) (18,382,410)
Net Assets
Beginning of Year 49,002,390 67,384,800
------------- -------------
End of Year $ 25,496,736 $ 49,002,390
============= =============
</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 Capital Appreciation Fund.
<TABLE>
<CAPTION>
For the period
March 9, 1993
For the years ended For the period For the (Commencement
September 30, Jan. 1, 1995 year ended of Operations)
-------------------------- to Sept. 30, Dec. 31, to Dec. 31,
1998 1997 1996 1995** 1994 1993
------- ------ ------ -------------- ---------- --------------
<S> <C> <C> <C> <C> <C> <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 Investment Income (0.12) (0.13) (0.10) (0.07) (0.04) (0.01)
Net Realized and Unrealized Gain (Loss) from
Investment Transactions (1.58) 2.13 1.89 4.80 0.42 1.73
------ ------ ------ ------ ------ ------
Total Income (Loss) from Investment Operations (1.70) 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 $11.38 $15.72 $16.79 $16.83 $12.10 $11.72
====== ====== ====== ====== ====== ======
Total Investment Return (11.42)% 14.64% 12.35% 39.09% 3.24% 21.54%
Supplemental Data and Ratios:
Net Assets, End of Period (000s omitted) $25,497 $49,002 $67,385 $57,380 $42,737 $17,573
Ratios to Average Net Assets:
Expenses in Excess of Income (0.70)% (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 0.39% 0.29% 0.26% 0.32%* 0.54% 0.74%*
</TABLE>
- -----------
* Annualized
**Board of Trustees approved the change of the fiscal year end from December 31
to September 30.
See Notes to Financial Statements on Page 8
7
<PAGE>
CAPITAL APPRECIATION FUND
Notes to Financial Statements
Note 1--Organization and Significant Accounting Policies
A. Organization
BT Investment Funds (the "Trust") is registered under the Investment Company Act
of 1940 (the "Act"), as amended, as an open-end management investment company.
The Trust was organized on July 21, 1986, as a business trust under the laws of
the Commonwealth of Massachusetts. The Capital Appreciation Fund (the "Fund") is
one of the funds offered to investors by the Trust. The Fund commenced
operations and began offering shares of beneficial interest on March 9, 1993.
The Fund invests substantially all of its assets in the Capital Appreciation
Portfolio (the "Portfolio"). The Portfolio is an open-end management investment
company registered under the Act. The Fund seeks to achieve its investment
objective by investing all of its investable assets in the Portfolio. The value
of such investment in the Portfolio reflects the Fund's proportionate interest
in the net assets of the Portfolio. At September 30, 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 these financial statements.
B. Valuation
Valuation of securities by the Portfolio is discussed in Note 1B of the
Portfolio's Notes to Financial Statements.
C. Investment Income
The Fund earns income, net of expenses, daily on its investment in the
Portfolio. All of the net investment income (loss) and realized and unrealized
gains and losses from the security transactions of the Portfolio are allocated
pro rata among the investors in the Portfolio at the time of such determination.
D. 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 to the extent they are not offset by
any capital loss carryforwards.
E. 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 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.
F. 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 all of the Trust's funds are allocated
among the Funds. Investment transactions are accounted for on the trade date
basis. Realized gains and losses are determined 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 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.
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.
The Trust has entered into a distribution agreement with ICC Distributors, 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 calendar quarter basis
and 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:
For the For the
year ended year ended
September 30, 1998 September 30, 1997
------------------------- --------------------------
Shares Amount Shares Amount
---------- ------------ ---------- ------------
Sold 4,302,213 $57,990,982 1,304,558 $18,537,543
Reinvested 361,352 4,263,959 425,141 6,064,050
Redeemed (5,540,913) (73,759,183) (2,625,585) (36,238,151)
---------- ------------ ---------- ------------
Net Decrease (877,348) $(11,504,242) (895,886) $(11,636,558)
========== ============ ---------- ============
8
<PAGE>
CAPITAL APPRECIATION FUND
Report of Independent Accountants
To the Trustees of BT Investment Funds and the Shareholders of
Capital Appreciation 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 Capital Appreciation 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 $4,287,079. 18.6% of all long term capital gain distributions are
taxes at the 20% capital gains rate.
In addition, of the ordinary distributions made during the year ending 9/30/98,
$0.05 per share qualify for the dividends received deduction available to
corporate shareholders.
9
<PAGE>
CAPITAL APPRECIATION PORTFOLIO
Schedule of Portfolio Investments September 30, 1998
Shares Description Value
- ------ ----------- -----
COMMON STOCK - 91.43%
America's Changing Leisure Time - 2.99%
8,600 Gemstar International Group * $ 398,825
10,800 Ryanair Holdings Plc - ADR * 369,900
-----------
768,725
-----------
Client Server Computing - 5.77%
9,256 Compuware Corporation * 544,947
4,600 Lexmark International Group, Inc. - Class A * 318,837
11,600 Platinum Technology, Inc. * 208,800
8,200 Tech Data Corporation * 410,512
-----------
1,483,096
-----------
Consolidating America - 8.33%
14,700 Clear Channel Communication * 698,250
3,000 Heftel Broadcasting Corporation - Class A * 113,250
27,584 Outdoor Systems, Inc. * 537,888
17,600 United Rentals, Inc. * 421,300
12,400 Univision Communications, Inc. - Class A * 368,900
-----------
2,139,588
-----------
Energizing the Globe - 2.04%
26,200 Global Industries, Ltd. * 302,938
16,800 Ocean Energy, Inc. * 220,500
-----------
523,438
-----------
Environmental Crisis - 3.24%
15,800 Allied Waste Industries, Inc. * 369,325
11,900 American Disposal Services, Inc. * 463,356
-----------
832,681
-----------
Interactive Media - 6.10%
5,600 Comsat Corporation 197,400
23,100 Learning Company, Inc. * 457,668
13,400 Scientific-Atlanta, Inc. 283,075
11,600 Snyder Communications, Inc. * 388,600
8,500 Young & Rubicam, Inc. * 241,188
-----------
1,567,931
-----------
Life on the Net - 7.15%
7,300 America Online, Inc. * 812,125
13,500 At Home Corporation * 646,313
7,100 CMG Information Services * 378,075
-----------
1,836,513
-----------
Life Sciences Revolution - 9.86%
7,900 Centocor, Inc. * 313,038
8,682 Elan Corporation plc - ADR * 625,647
12,100 Forest Laboratories - Class A * 415,938
17,400 Mylan Laboratories, Inc. 513,300
13,100 Watson Pharmaceuticals, Inc. * 664,825
-----------
2,532,748
-----------
Managing the Information Age - 5.11%
18,300 Concord EFS, Inc. * 472,368
9,400 FISERV, Inc. * 432,988
12,900 Sungard Data Systems, Inc. * 406,350
-----------
1,311,706
-----------
Shares Description Value
- ------ ----------- -----
New Consumer - 4.02%
10,700 CKE Restaurants, Inc. $ 318,325
20,400 Flowers Industries, Inc. 444,975
15,100 TJX Companies, Inc. 268,969
-----------
1,032,269
-----------
New Health Care Paradigm - 9.13%
11,100 HBO & Company 320,513
11,600 Henry Schein * 403,100
7,300 McKesson Corporation 668,863
9,200 Quintiles Transnational Corporation * 402,500
9,300 Safeskin Corporation * 293,531
10,700 Total Renal Care Holdings * 256,800
-----------
2,345,307
-----------
Our Strengthening Financial Structure - 9.84%
21,500 ACE Limited 645,000
4,000 Capital One Financial Corporation 414,000
7,300 FINOVA Group Inc. 364,544
6,200 Fremont General Corporation 297,600
5,400 Life Re Corporation 496,463
8,000 Newcourt Credit Group, Inc. 209,000
11,600 Ocwen Financial Corporation * 101,500
-----------
2,528,107
-----------
Return to Home Ownership - 1.79%
16,700 Linens 'n Things, Inc. * 459,250
-----------
Stores of Value - 3.33%
22,200 Family Dollar Stores, Inc. 349,650
10,600 Rite Aid 376,300
3,100 U.S. Foodservice * 129,036
-----------
854,986
-----------
Telecommunications - 9.39%
10,800 Frontier Corporation 295,650
14,400 General Cable Corporation 266,400
24,800 Global Crossing, Ltd. * 517,700
10,600 QWEST Telecommunications * 331,913
14,400 RSL Communications - Class A * 390,600
5,600 Uniphase Corporation * 229,600
16,100 WinStar Communications, Inc. * 382,375
-----------
2,414,238
-----------
The Ubiquitous Semiconductor - 3.34%
9,200 Micron Technology, Inc. * 280,025
5,700 Rambus, Inc. * 364,800
7,900 SCI Systems, Inc. * 212,806
-----------
857,631
-----------
Total Common Stock (Cost $19,558,231) 23,488,214
-----------
See Notes to Financial Statements on Page 14
10
<PAGE>
CAPITAL APPRECIATION PORTFOLIO
Schedule of Portfolio Investments September 30, 1998
Shares Description Value
- ------ ----------- -----
CONVERTIBLE PREFERRED STOCK - 2.32%
Consolidating America - 0.86%
6,200 United Rentals, Cv. Pfd. $ 221,650
-----------
Energizing the Globe - 1.46%
6,600 AES Trust I - Series A, 5.375%, 3/31/27 375,375
-----------
Total Preferred Stock (Cost $640,000) 597,025
-----------
Shares Description Value
- ------ ----------- -----
SHORT TERM INSTRUMENT - 5.34%
1,371,426 BT Institutional Cash Management Fund
(Cost $1,371,426) $ 1,371,426
-----------
Total Investments (Cost $21,569,657) 99.09% $25,456,665
Other Assets Less Liabilities 0.91% 232,657
------- -----------
Total Net Assets 100.00% $25,689,322
======= ===========
- ----------
* Non-Income Producing Security
The following abbreviation is used in portfolio descriptions:
ADR -- American Depository Receipt
See Notes to Financial Statements on Page 14
11
<PAGE>
CAPITAL APPRECIATION PORTFOLIO
Statement of Assets and Liabilities September 30, 1998
Assets
Investments, at Value (Cost of $21,569,657) $25,456,665
Receivables for Securities Sold 253,499
Other Receivables 16,624
-----------
Total Assets 25,726,788
-----------
Liabilities
Due to Bankers Trust 11,096
Accrued Expenses and Other 26,370
-----------
Total Liabilities 37,466
-----------
Net Assets $25,689,322
===========
Composition of Net Assets
Paid-in Capital $21,802,314
Net Unrealized Appreciation on Investments 3,887,008
-----------
Net Assets $25,689,322
===========
Statement of Operations For the year ended September 30, 1998
Investment Income
Dividends $ 213,567
-----------
Expenses
Advisory Fees 252,946
Administration and Services Fees 38,915
Professional Fees 40,569
Trustees Fees 2,744
Miscellaneous 140
-----------
Total Expenses 335,314
Less Expenses Absorbed by Bankers Trust (101,826)
-----------
Net Expenses 233,488
-----------
Expenses in Excess of Investment Income (19,921)
-----------
Realized and Unrealized Gain (Loss) on Investments
Net Realized Gain from Investment Transactions 4,677,569
Net Change in Unrealized Appreciation/Depreciation on Investments (8,470,353)
-----------
Net Realized and Unrealized Loss on Investments (3,792,784)
-----------
Net Decrease in Net Assets from Operations $(3,812,705)
===========
See Notes to Financial Statements on Page 14
12
<PAGE>
CAPITAL APPRECIATION 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> <C>
Increase (Decrease) in Net Assets from:
Operations
Expenses in Excess of Investment Income $ (19,921) $ (61,546)
Net Realized Gain from Investment Transactions 4,677,569 9,773,379
Net Change in Unrealized Appreciation/Depreciation on Investments (8,470,353) (2,669,027)
----------- -----------
Net Increase (Decrease) in Net Assets from Operations (3,812,705) 7,042,806
----------- -----------
Capital Transactions
Proceeds from Capital Invested 62,320,016 24,591,506
Value of Capital Withdrawn (81,789,768) (51,048,028)
----------- -----------
Net Decrease in Net Assets from Capital Transactions (19,469,752) (26,456,522)
----------- -----------
Total Decrease in Net Assets (23,282,457) (19,413,716)
Net Assets
Beginning of Year 48,971,779 68,385,495
----------- -----------
End of Year $25,689,322 $48,971,779
=========== ===========
</TABLE>
Financial Highlights
Contained below are selected ratios to average net assets and other supplemental
data for periods indicated for the Capital Appreciation Portfolio.
<TABLE>
<CAPTION>
For the years ended For the period For the
September 30, Jan. 1, 1995 year ended
---------------------------- to Sept. 30, Dec. 31,
1998 1997 1996 1995** 1994
------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Supplemental Data and Ratios:
Net Assets, End of Period (000s omitted) $25,689 $48,972 $68,385 $149,888 $73,634
Ratios to Average Net Assets:
Net Investment Income (Expenses in Excess of
Investment Income) (0.05)% (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 0.26% 0.21% 0.17% 0.18%* 0.23%
Portfolio Turnover Rate 145% 167% 271% 125% 157%
</TABLE>
- ----------
* Annualized
**The Board of Trustees approved the change of the fiscal year end from December
31 to September 30.
See Notes to Financial Statements on Page 14
13
<PAGE>
CAPITAL APPRECIATION PORTFOLIO
Notes to Financial Statements
Note 1--Organization and Significant Accounting Policies
A. Organization
The Capital Appreciation Portfolio (the "Portfolio") is registered under the
Investment Company Act of 1940 (the "Act"), as amended, as an open-end
management investment company. The Portfolio was organized on October 28, 1992,
as an unincorporated trust under the laws of New York and commenced operations
on March 9, 1993. The Declaration of Trust permits the Board of Trustees (the
"Trustees") to issue beneficial interests in the Portfolio.
B. Security Valuation
The Portfolio's investments listed or traded on National Stock Exchanges or
other domestic or foreign exchanges are valued based on the closing price of a
security traded on that exchange prior to the time when the Portfolio assets are
valued. Short-term 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 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 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. Federal Income Taxes
The Portfolio is considered a Partnership under the Internal Revenue Code.
Therefore, no federal income tax provision is necessary.
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.
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.
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.
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 September 30, 1998 amounted to $99,298 and are included
in 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 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 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
$53,339,795 and $72,484,325, respectively.
The tax basis of investments held at September 30, 1998, was $21,612,496. The
aggregate gross unrealized appreciation for all investments was $4,928,967 and
the aggregate gross unrealized depreciation for all investments was $1,134,798.
14
<PAGE>
CAPITAL APPRECIATION PORTFOLIO
Report of Independent Accountants
To the Trustees and Holders of Beneficial Interest of the Capital Appreciation
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 Capital Appreciation 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
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
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 Capital Appreciation CUSIP #055922819
STA465200 (9/98)
