March 31, 1999
BT Mutual Funds
International Small Company
Equity Fund
Semi-Annual Report
Trust: BT Investment Funds
Investment Advisor: Bankers Trust Company
<PAGE>
International Small Company Equity Fund
Table of Contents
Letter to Shareholders .................................................... 3
International Small Company Equity 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
International Small Company Equity 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
The Fund is not insured by the FDIC and is not a deposit, obligation of or
guaranteed by Bankers Trust Company. The Fund is subject to investment risks,
including possible loss of principal amount invested.
2
<PAGE>
International Small Company Equity Fund
Letter to Shareholders
We are pleased to present you with this semi-annual report for the BT Investment
International Small Company Equity Fund (the "Fund"), providing a review of the
markets, the Portfolio, and our outlook. Included are a complete financial
summary of the Fund's operations and a listing of the Portfolio's holdings.
MARKET ACTIVITY
Overall, the six months ended March 31, 1999 witnessed a continuation of the
significant volatility experienced by smaller companies, both in the U.S. and
internationally, during the previous year. While equities in general were
strong, the small cap sector in particular still lagged, as concerns over both
foreign and domestic economies kept investor preference toward
large-capitalization stocks.
Global markets rebounded to new highs in the fourth calendar quarter. This
recovery was prompted in large part by the U.S. Federal Reserve Board removing
some of the systemic risk in the global financial system through two official
interest rates cuts. In turn, Japan and Europe cut their interest rates,
reinforcing the trend towards lower rates globally. Small cap stocks benefited
from this trend, with liquidity generally improving.
The recovery in small caps came almost entirely from growth stocks. Investors
appeared willing to endure the lack of liquidity in small caps, but only if they
could get earnings growth in exchange. All growth sectors bounced back, with
technology leading the recovery.
Japan's small cap equities showed particularly strong performance in the first
quarter of 1999. Expectations of a recovery in the Japanese economy grew with a
flow of restructuring announcements by Japanese corporations and bank capital
injections. A Tankan survey was released indicating improved business sentiment.
There were also signs of improvement in consumer confidence in Europe.
Overall, relative small cap performance was impacted by three dominant factors.
o Macroeconomic environment - The premium on larger capitalization equities'
liquidity and perceived safety remained, to the clear detriment of smaller
companies, as:
-the crisis in Asia spread to other regions, especially to Latin America
-fears of a global credit crunch hovered
-a flight to quality sentiment was still in place
-indexing and index-hugging grew in popularity
-concerns grew that, at best, the Federal Reserve Board was on hold, and
perhaps may act to raise interest rates at the first sign of U.S. inflation.
o Earnings and valuations - Small cap earnings expectations were initially
strong, though they came in weaker than expected. Relative valuations as
compared to large cap stocks were extremely attractive at multi-decade lows.
This made global small caps a value play, as investors continued to bid up
large cap stocks.
o Globalization - A deluge of merger and acquisition (M&A) activity tended to
support large cap stocks, as small cap stocks were for the most part
underrepresented in those sectors most affected, such as financials,
utilities, and pharmaceuticals. More recently, the automobile, oil, and
telecommunications sectors also saw great M&A activity. The trend was away
from domestic deals and toward regional, pan-European, or global ones.
INVESTMENT REVIEW
The Fund underperformed its benchmark and category average, primarily because
many of the stocks in our portfolio were the smaller companies within the small
company universe, and the drive toward the more liquid stocks punished these
stocks more significantly. Our bias for recovering and restructuring companies
also impacted performance, as companies undergoing change tend to have greater
difficulty in volatile times like these. The Fund's underweight position in the
outperforming Japanese market hurt performance in the second quarter of the
semi-annual period.
Periods ended March 31, 1999 Cumulative Total Returns
---------------------------- ---------- -------------
Past 6 Since
months inception
---------- -------------
BT Investment International
Small Company Equity Fund(1) (5.98)% (24.50)%
(inception 6/30/98)
Salomon Brothers Extended
Market Index Ex US(2) 14.77% (2.60)%
Lipper International Small
Cap Average(3) 18.35% (1.42)%
Given our outlook for global small cap stocks, we began to make some structural
changes to the portfolio over the semi-annual period. For example, we increased
the Fund's exposure to:
o some larger, more liquid small cap stocks
o companies with greater earnings visibility
o more growth-oriented small cap companies
o sectors where small caps can more effectively compete, have a chance of
achieving top line growth, and have potential for some pricing power, e.g.
education, technology, media, and outsourcing companies.
Ten Largest Stock Holdings
Nihon Unisys, Ltd. MDIS Group PLC
EasyNet Group PLC Sogeparc SA
Modern Times Group MTG - B Nutreco Holding NV
PubliGroupe SA BPP Holdings PLC
Expand Havas Advertising SA
- ---------
(1) 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.
(2) Indexes are unmanaged, and investments cannot be made in an index. During
the period the Fund waived certain fees and expenses. Had these fees and
expenses not been waived, the Fund's return would have been lower.
(3) Lipper figures represent the average of the total returns reported by all of
the mutual funds designated by Lipper Analytical Services, Inc. as falling
into the respective categories indicated. These figures do not reflect sales
charges.
3
<PAGE>
International Small Company Equity Fund
Letter to Shareholders
[GRAPHIC]
Diversification of Portfolio Investments
By Sector as of March 31, 1999
(percentages are based on market value)
Netherlands 8%
Japan 10%
Sweden 10%
France 14%
United Kingdom 28%
Switzerland 7%
Germany 5%
Ireland 5%
Spain 3%
Norway 2%
Italy 2%
Austria 2%
Canada 2%
Finland 1%
Hong Kong 1%
There is particularly strong evidence of recovery coming through for the media
sector in Europe. These companies tend to be major players in their markets, and
management is often focused on improving shareholder returns. The Fund bought
shares of MTG in Sweden and Havas Advertising in France and increased our
holding in PubliGroupe in Switzerland.
More specifically, we sought companies with the following attributes:
o niche positioning and market share
o geographic expansion potential to grow their top line
o strategic alliances
o outsourcing practices
o emerging industries.
We also made some sector adjustments to the Fund, both geographically and by
industry. We continued to favor continental Europe. Holdings in the United
Kingdom were reduced and exposure to Japan remained low. This allocation did
benefit the Fund. Our favored sectors were technology, telecommunications
equipment, outsourcing, and education. These sectors all experienced structural
growth and thus were less exposed to any slowdown in the world economy. We also
focused on companies that are domestically-oriented and therefore somewhat
sheltered from slower global growth.
For example, we focused on mobile phones in Europe. The Fund purchased holdings
in Europolitan in Sweden, Esat Telecom in Ireland, and Filtronic in the United
Kingdom--each driven by the explosive growth in this sector. We continued to
underweight the basics and industrial capital goods sectors, where there was
significant overcapacity and a general lack of pricing power.
MANAGER OUTLOOK
As we look ahead for the near term, we anticipate a somewhat difficult
environment for smaller companies.
o Small companies tend to be tied to their local economies, while large caps are
often more diversified across markets. As our global economic growth and
inflation expectations are subdued, larger companies may be favored.
o Investors in the new European economic and monetary union (EMU) are primarily
allocating their institutional equity portfolios to the largest stocks of the
different European countries. As European benchmark indices supplant old
national ones, valuations and performance will be affected.
Performance Comparison
Comparison of Change in Value of a $10,000 Investment in the BT Investment
International Small Company Equity Fund and the Salomon Brothers Extended Market
Index since June 30, 1998.
Total Return for the Periods
Ended March 31, 1999(2)
Six Months Since 6/30/98(1)
(5.98)% (24.50)%
(1) The Fund's inception date.
(2) Unaudited.
Investment return and principal value may fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
BT Investment Salomon Brothers
International Extended
Small Company Market
Equity Fund - Index -
$7,550 $9,740
------------- ----------------
Jun-98 10000 10000
Sep-98 8030 8487
Dec.-98 7971 9604
Mar-99 7550 9740
Performance figures assume the reinvestment of dividends and capital gain
distributions.
4
<PAGE>
International Small Company Equity Fund
Letter to Shareholders
o More and more index trackers are coming to the market and driving the share
prices of larger stocks.
o Risk and volatility premia, while falling, are expected to remain high.
However, over the longer term, there are still many reasons to be optimistic on
the international small cap sector.
o Global interest rates have been reduced, hence the operating environment is
improving and small caps are once again being offered capital to finance
growth.
o The valuation of small caps relative to large caps remains particularly
attractive, with some market valuations at historic lows.
o Should a world economic slowdown take place, it is likely that large cap
stocks that rely on globalization for their earnings growth will relatively
underperform small cap stocks that rely on new product innovation for earnings
growth.
o Small cap companies tend to be more domestically oriented than large cap
multi-nationals and, as such are less potentially vulnerable in a slowing
global growth environment.
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. At Bankers Trust we are disciplined in our "growth at a reasonable price"
(GARP) investment process. We:
o focus on individual companies that offer compelling valuations relative to
their growth rates as well as those that offer a strengthening competitive
position, good total returns with what we believe is relatively little
financial or other risk, and a sound historical management strategy
o focus on companies that are in industries experiencing sharp growth
o use extensive fundamental research to identify attractive investment
opportunities in unrecognized value companies and sectors internationally
o exploit the gap between perception and reality of a company's true business
value as a potential source of value for the Fund's investors
o use the volatility of the marketplace to our investors' advantage by
initiating or adding to positions on weakness
o use asset allocation, country selection, and currency selection primarily as
risk management tools.
We will continue to monitor economic conditions and their effect on financial
markets as we seek long-term capital appreciation.
We value your support of the International Small Company Equity Fund and look
forward to serving your investment needs in the years ahead.
/s/ Monik Kotecha
Monik Kotecha
Portfolio Manager of the
International Small Company Equity Portfolio
March 31, 1999
5
<PAGE>
International Small Company Equity Fund
Statement of Assets and Liabilities March 31, 1999 (unaudited)
<TABLE>
<CAPTION>
<S> <C>
Assets
Investment in International Small Company Equity Portfolio, at Value ....... $ 107,250
Prepaid Expenses and Other ................................................. 13,798
---------
Total Assets .................................................................. 121,048
---------
Liabilities
Due to Bankers Trust ....................................................... 13,709
Accrued Expenses and Other ................................................. 26,240
---------
Total Liabilities ............................................................. 39,950
---------
Net Assets .................................................................... $ 81,098
=========
Composition of Net Assets
Paid-in Capital ............................................................ $ 98,690
Undistributed Net Investment Income ........................................ 414
Accumulated Net Realized Loss from Investment, Foreign Currency and Forward
Foreign Currency Transactions ........................................... (15,998)
Net Unrealized Depreciation on Investments, Foreign Currencies and Forward
Foreign Currency Contracts .............................................. (2,008)
---------
Net Assets .................................................................... $ 81,098
=========
Net Asset Value, Offering and Redemption Price Per Share (net assets divided by
shares outstanding) ........................................................... $ 7.53
=========
Shares Outstanding ($0.001 par value per share, unlimited number of shares
of beneficial interest authorized) ......................................... 10,768
=========
</TABLE>
Statement of Operations For the six months ended March 31, 1999 (unaudited)
<TABLE>
<CAPTION>
<S> <C>
Investment Income
Income Allocated from International Small Company Equity Portfolio, net .... $ 219
---------
Expenses
Professional Fees .......................................................... 12,371
Printing and Shareholder Reports ........................................... 6,370
Trustee Fees ............................................................... 2,139
Administration and Service Fee ............................................. 365
Registration Fees .......................................................... 989
Miscellaneous .............................................................. 4,781
---------
Total Expenses ............................................................. 27,014
Less Expenses absorbed by Bankers Trust .................................... (26,436)
---------
Net Expenses ............................................................ 578
---------
Expenses in Excess of Investment Income ....................................... (359)
---------
Realized and Unrealized Gain (Loss) on Investment, Foreign Currencies
and Forward Foreign Currency Contracts
Net Realized (Loss) from:
Investment Transactions ............................................... (14,001)
Foreign Currency Transactions ......................................... (944)
Forward Foreign Currency Transactions ................................. (1,038)
Net Change in Unrealized Appreciation/Depreciation on Investment,
Foreign Currency, and Forward Foreign Currency Transactions ............. 11,845
---------
Net Realized and Unrealized Loss on Investment, Foreign Currencies
and Forward Foreign Currency Contracts ..................................... (4,138)
---------
Net Decrease in Net Assets from Operations .................................... $ (4,498)
=========
</TABLE>
See Notes to Financial Statements.
6
<PAGE>
International Small Company Equity Fund
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the period
For the six June 30, 1998(1)
months ended through
March 31, 1999(2) September 30, 1998
-------------- ------------------
<S> <C> <C>
Increase (Decrease) in Net Assets from:
Operations
Net Investment Income (Expenses in Excess of Investment Income) ...... $ (359) $ 21
Net Realized Gain from Investment, Foreign Currency and Forward
Foreign Currency Transactions ..................................... (15,984) 878
Net Change in Unrealized Appreciation/Depreciation on Investment,
Foreign Currency and Forward Foreign Currency Contracts ........... 11,845 (13,853)
--------- ---------
Net Decrease in Net Assets from Operations .............................. (4,498) (12,954)
--------- ---------
Distributions to Shareholders
Net Investments Income ............................................... -- --
Net Realized Gains ................................................... (220) --
--------- ---------
Total Distributions ..................................................... (220) --
Capital Transactions
Proceeds from Sales of Shares ........................................ 465,654 119,497
Dividend Reinvestments ............................................... -- --
Cost of Shares Sold .................................................. (440,609) (45,772)
--------- ---------
Total Increase from Capital Transactions in Shares of Beneficial Interest 25,045 73,725
--------- ---------
Total Increase in Net Assets ............................................ 20,327 60,771
Net Assets
Beginning of Period ..................................................... 60,771 --
--------- ---------
End of Period (Including undistributed net investment income of $414
and $773, respectively) .............................................. $ 81,098 $ 60,771
========= =========
</TABLE>
- --------------
(1) Commencement of operations
(2) Unaudited
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 period
indicated for the International Small Company Equity Fund.
<TABLE>
<CAPTION>
For the period
For the six June 30, 1998(2)
months ended through
March 31, 1999(4) September 30, 1998
-------------- ------------------
<S> <C> <C>
Per Share Operating Performance:
Net Asset Value, Beginning of Period ................................ $ 8.03 $ 10.00
--------- ----------
Income from Investment Operations
Net Investment Income (Expenses in Excess of Investment Income) .. (0.06) 0.00(3)
Net Realized and Unrealized Loss on Investment,
Foreign Currencies, and Forward Foreign Currency Transactions . (0.42) (1.97)
--------- ----------
Total Operations .................................................... (0.48) (1.97)
--------- ----------
Distributions to Shareholders
Net Investment Income ............................................ -- --
Net Realized Gains ............................................... (0.02) --
--------- ----------
Net Asset Value, End of Period ...................................... $ 7.53 $ 8.03
========= ==========
Total Investment Return ............................................. (5.98)% (19.70)%
Supplemental Data and Ratios:
Net Assets, End of Year (000s omitted) ........................... $ 81 $ 61
Ratios to Average Net Assets:
Net Investment Income (Expenses in Excess of Investment Income) (0.87)%(1) 0.22%(1)
Expenses, Including Expenses of the Institutional Small Company
Equity Portfolio ........................................... 1.90%(1) 1.90%(1)
Decrease Reflected in Above Expense Ratio Due to Absorption
of Expenses by Bankers Trust ............................... 71%(1) 210%(1)
</TABLE>
- ------------
(1) Annualized
(2) Commencement of operations
(3) Less than .01 per share
(4) Unaudited
See Notes to Financial Statements.
7
<PAGE>
International Small Company Equity Fund
Notes to Financial Statements (unaudited)
Note 1--Organization and Significant Accounting Policies
A. Organization
BT Investment Funds (the "Trust") is registered under the Investment Company Act
of 1940 (the "Act"), as amended, as an open-end management investment company.
The Trust was organized on July 21, 1986, as a Massachusetts business trust
under the laws of the Commonwealth of Massachusetts. International Small Company
Equity Fund (the "Fund") is one of the funds offered to investors by the Trust.
The Fund commenced operations and began offering shares of beneficial interest
on June 30, 1998. The Fund invests substantially all of its assets in the
International Small Company Equity Portfolio (the "Portfolio"). The Portfolio is
an open-end management investment company registered under the Act. The Fund
seeks to achieve its investment objective by investing all of its investable
assets in the Portfolio. The Fund's Portfolio reflects its proportionate
interest in the net assets of the Portfolio. At March 31, 1999, the Fund's
investment was approximately 22% of the Portfolio.
The financial statements of the Portfolio, including a list of assets held are
contained elsewhere in this report and should be read in conjunction with the
Fund's financial statements.
B. Valuation of Securities
The valuation of securities by portfolio is discussed in note 1B to the
portfolio's Notes to Financial Statements, which have been included elsewhere in
this report.
C. Investment Income
The Fund earns income, net of expenses, 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. Distributions
It is the Fund's policy to declare and distribute dividends annually to
shareholders from net investment income, if any. Dividends and distributions
payable to shareholders are recorded by the Fund on the ex-dividend date.
Distributions of net realized short-term and long-term capital gains, if any,
earned by the Fund will also be made annually 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 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
gain 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 the Trusts are allocated among the
Funds. Investment transactions are accounted for on a trade date basis. Realized
gains and losses are determined on an 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 .90% 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 0.80% of
the average daily net assets of the Fund, excluding expenses of the Portfolio
and 1.90% of the average daily net assets of the Fund, including expenses of the
Portfolio.
ICC Distributors, Inc. a member of the Forum Group of Companies, provides
distribution services to the Fund.
Bankers Trust Company is a wholly owned subsidiary of Bankers Trust Corporation.
On November 30, 1998, Bankers Trust Corporation entered into an Agreement and
Plan of Merger with Deutsche Bank AG under which Bankers Trust Corporation would
merge with and into a subsidiary of Deutsche Bank AG. Deutsche Bank AG is a
major global banking institution that is engaged in a wide range of financial
services, including investment management, mutual funds, retail and commercial
banking, investment banking and insurance. The transaction is contingent upon
various regulatory approvals, and continuation of the Fund's advisory
relationship with Bankers Trust thereafter is subject to the approval of Fund
shareholders. If the transaction is approved and completed, Deutsche Bank AG, as
Bankers Trust's new parent company, will control its operations as investment
adviser. Bankers Trust believes that, under this new arrangement, the services
provided to the Fund will be maintained at their current level.
8
<PAGE>
International Small Company Equity Fund
Notes to Financial Statements (unaudited)
Note 3--Shares of Beneficial Interest
At March 31, 1999, there were an unlimited number of shares of beneficial
interest authorized. Transactions in shares of beneficial interest were as
follows:
For the period
June 30, 1998
(Commencement
For the six months ended of Operations)
March 31, 1999 (unaudited) to September 30, 1998
-------------------------- ---------------------
Shares Amount Shares Amount
------ ------ ------ ------
Sold .................. 58,333 $ 465,654 12,360 $ 119,497
Reinvested ............ -- -- -- --
Redeemed .............. (55,135) (440,609) (4,790) (45,772)
------- --------- ------ ---------
Net Increase (Decrease) 3,198 $ 25,045 7,570 $ 73,725
======= ========= ====== =========
Note 4--Risks of Investing in International Small Company Stocks
Historically, medium- and small-capitalization stocks have been more volatile in
price than the larger-capitalization stocks included in the S&P500. Among the
reasons for the greater volatility of these securities are the less certain
growth prospects of smaller firms, the lower degree of liquidity in the markets
for such stocks, and the greater sensitivity of medium- and small-size companies
to changing economic conditions. In addition to exhibiting greater volatility,
medium and small-size company stocks may fluctuate independently of larger
company stocks. Medium- and small-size stocks may decline in price as large
company stocks rise, or rise in price as large company stocks decline.
9
<PAGE>
International Small Company Equity Portfolio
Schedule of Portfolio Investments March 31, 1999 (unaudited)
Shares Description Value
------ ----------- -----
Common Stocks - 85.9%
Austria - 1.5%
104 Austria Tabakwerke AG ................................ $ 7,007
-------
Canada - 1.4%
497 Clearnet Communications, Inc. Class A ................ 6,587
-------
Finland - 0.6%
333 Raisio Group PLC ..................................... 3,089
-------
France - 12.4%
1,307 Bertin Et Cie SA (b) (c) ............................. 0
87 Club Mediterrane SA .................................. 7,703
357 Expand (b) ........................................... 13,492
60 Groupe GTM ........................................... 5,961
42 Hachette Filipacchi Medias ........................... 9,800
54 Havas Advertising SA ................................. 10,467
158 Sogeparc SA .......................................... 12,352
-------
59,775
-------
Germany - 1.3%
163 Boewe Systec AG ...................................... 4,400
118 Rinol AG ............................................. 1,911
-------
6,311
-------
Hong Kong - 0.6%
2,000 ASM Pacific Technology, Ltd. ......................... 1,058
1,200 Hong Kong Aircraft Engineering ....................... 1,765
-------
2,823
-------
Ireland - 4.2%
399 CBT Group Public Ltd. Company ADR (a) ................ 4,564
128 Esat Telecom PLC ..................................... 5,360
170 IONA Technologies PLC ADR (a) ........................ 5,164
427 Saville Systems, PLC ADR ............................. 5,231
-------
20,319
-------
Italy - 1.8%
4,031 Poligrafici Editoriale SPA ........................... 6,028
1,570 Stefanel SPA (a) ..................................... 2,399
-------
8,427
-------
Japan - 8.8%
1,000 Japan Airport Terminal, Co., Ltd. .................... 7,859
1,000 Nihon Unisys, Ltd. ................................... 18,448
800 Nishio Rent All Co. .................................. 7,076
200 Trans Cosmos, Inc. ................................... 8,760
-------
42,143
-------
Netherlands - 7.6%
200 Athlon Groep NV ...................................... 5,259
255 GTI Holding NV ....................................... 4,956
469 ICT Automatisering NV ................................ 9,622
295 Nutreco Holding NV ................................... 12,152
216 Unit 4 (a) ........................................... 4,735
-------
36,724
-------
Norway - 2.2%
4,973 NCL Holdings ASA (a) ................................. 10,688
-------
Shares Description Value
------ ----------- -----
Spain - 2.5%
110 Portland Valderrivas SA ......................... $ 3,857
347 Superdiplo SA (a) ............................... 8,254
--------
12,111
--------
Sweden - 9.3%
690 Castellum AB .................................... 6,426
248 Enator AB ....................................... 7,125
71 Europolitan Holdings AB ......................... 6,552
781 Modern Times Group MTG B ........................ 13,977
311 OM Gruppen AB ................................... 3,900
241 Scandic Hotels AB ............................... 6,924
--------
44,904
--------
Switzerland - 6.7%
6 Bank Sarasin et Cie ............................. 10,114
7 Phonak Holdings AG .............................. 8,293
32 PubliGroupe SA .................................. 13,886
--------
32,293
--------
United Kingdom - 24.9%
2,070 Anglo Irish Bank Corporation PLC ................ 5,947
1,310 BPP Holdings PLC ................................ 10,730
1,958 Corporate Services Group PLC .................... 2,323
2,130 Easynet Group PLC ............................... 14,284
3,620 Fife Group PLC (b) .............................. 3,476
367 Filtronic PLC ................................... 4,715
2,141 First Active PLC ................................ 9,071
410 ICON PLC ADR (a) ................................ 5,945
13,031 Industrial Control Services
Group PLC (b) ................................... 4,049
982 Infobank International Holdings PLC ............. 1,363
276 Kewill Systems PLC .............................. 6,593
22,256 MDIS Group PLC .................................. 13,291
4,679 Northern Leisure PLC ............................ 10,233
3,340 Nursing Home Properties PLC ..................... 9,569
3,090 Quarto Group Group, Inc. (b) .................... 4,065
8,640 Southhampton Leisure Holdings PLC ............... 5,299
12,461 Tullow Oil PLC .................................. 9,050
--------
120,003
--------
Total Common Stocks (Cost $472,159) ............................ 413,204
--------
PREFERRED STOCK - 3.6%
Germany - 3.6%
254 Fielmann AG-Pfd ................................. 9,023
168 Prosieben Media Ag-Pfd .......................... 8,073
--------
Total Preferred Stock (Cost $19,545) ........................... 17,096
--------
Total Investments (Cost $491,704) .................... 89.4% $430,300
Other Assets in Excess of Liabilities ................ 10.6% 50,806
----- --------
Net Assets ........................................... 100.0% $481,106
===== ========
- --------------
(a) Non-Income Producing Security
(b) Illiquid Security
(c) Security Fair Valued by Management. See Footnote 1b.
The following abbreviations are used in the portfolio descriptions:
ADR--American Depository Receipt
See Notes to Financial Statements.
10
<PAGE>
International Small Company Equity Portfolio
Schedule of Portfolio Investments March 31, 1999 (unaudited)
Industry Diversification (as a percentage of Total Investments):
% of
Industry Market Value
-------- ------------
Autos & Trucks ............. 1.32%
Banks ...................... 6.11%
Building & Construction .... 3.22%
Commercial Services ........ 5.68%
Computer Services & Software 23.47%
Consumer Goods ............. 7.50%
Financial Services ......... 3.26%
Foods ...................... 3.83%
Investment Companies ....... 2.40%
Leisure Related ............ 8.32%
Manufacturing .............. 3.06%
Marketing .................. 3.49%
Oil Related ................ 2.27%
Paper & Forest Products .... 1.10%
Pharmaceuticals ............ 1.49%
Printing & Publishing ...... 4.99%
Retail ..................... 2.07%
Telecommunication .......... 10.27%
Tobacco .................... 1.76%
Transportation ............. 1.97%
Other(1) ................... 2.42%
------
Total ...................... 100.00%
======
(1) No one industry represents more than 1% of Portfolio Holdings
See Notes to Financial Statements.
11
<PAGE>
International Small Company Equity Portfolio
Statement of Assets and Liabilities March 31, 1999 (unaudited)
<TABLE>
<CAPTION>
Assets
<S> <C> <C>
Investments, at value (cost of $491,704) ................................ $ 430,300
Cash(1) ................................................................. 58,689
Receivable for Securities Sold .......................................... 3,675
Unrealized Appreciation on Forward Foreign Currency Contracts ........... 5,242
Dividends and Interest Receivable ....................................... 1,476
---------
Total Assets .............................................................. 499,382
---------
Liabilities
Due to Bankers Trust .................................................... 2,076
Unrealized Depreciation on Forward Foreign Currency Contracts ........... 2,570
Accrued Expenses and Other .............................................. 13,630
---------
Total Liabilities ......................................................... 18,276
---------
Net Assets ................................................................ $ 481,106
=========
Composition of Net Assets
Paid-in Capital ......................................................... $ 540,123
Net Unrealized Depreciation on Investments, Foreign Currency and
Forward Foreign Currency Contracts .................................... (59,017)
---------
Net Assets ................................................................ $ 481,106
=========
- ---------
(1) Includes foreign cash of $34,220 with a cost of $34,448
Statement of Operations For the six months ended March 31, 1999 (unaudited)
Investment Income
Dividends (Net of Foreign Withholding Tax of $298) ...................... $ 2,203
Interest ................................................................ 2,024
---------
Total Investment Income ................................................... 4,227
---------
Expenses
Professional Fees ....................................................... 13,763
Advisory Fees ........................................................... 2,749
Trustees Fees ........................................................... 1,622
Administration and Service Fees ......................................... 375
Foreign Custody Fees .................................................... 112
Miscellaneous ........................................................... 920
---------
Total Expenses .......................................................... 19,541
Less Expenses absorbed by Bankers Trust ................................. (16,609)
---------
Net Expenses .......................................................... 2,932
---------
Net Investment Income ..................................................... 1,296
---------
Realized and Unrealized Gain (Loss) on Investments, Foreign Currencies and
Forward Foreign Currency Contracts
Net Realized Gain (Loss) from:
Investment Transactions ............................................... (69,540)
Foreign Currency Transactions ......................................... (5,773)
Forward Foreign Currency Transactions ................................. (6,032)
Net Change in Unrealized Appreciation/Depreciation on Investments,
Foreign Currencies and Forward Foreign Currency Contracts ............. 56,037
---------
Net Realized and Unrealized Loss on Investments, Foreign Currencies, and
Forward Foreign Currency Contracts ...................................... (25,307)
---------
Net Decrease in Assets from Operations .................................... $ (24,011)
=========
</TABLE>
See Notes to Financial Statements
12
<PAGE>
International Small Company Equity Portfolio
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the period
For the six June 30, 1998(2)
months ended through
March 31, 1999(3) September 30, 1998
--------------- ------------------
<S> <C> <C>
Increase (Decrease) in Net Assets from:
Operations
Net Investment Income ................................................... $ 1,296 $ 2,671
Net Realized Gain (Loss) from Investments, Foreign Currencies and Forward
Foreign Currency Transactions ........................................ (81,344) 9,979
Net Change in Unrealized Appreciation/Depreciation on Investments,
Foreign Currencies and Forward Foreign Currency Contracts ............ 56,037 (115,054)
--------- ---------
Net Decrease in Net Assets from Operations ................................. (24,011) (102,404)
--------- ---------
Capital Transactions
Proceeds from Capital Invested .......................................... 529,928 576,584
Value of Capital Withdrawn .............................................. (448,502) (50,489)
--------- ---------
Net Increase in Net Assets from Capital Transactions ....................... 81,426 526,095
--------- ---------
Total Increase in Net Assets ............................................... 57,415 423,691
Net Assets
Beginning of Period ........................................................ 423,691 --
--------- ---------
End of Period .............................................................. $ 481,106 $ 423,691
========= =========
</TABLE>
Financial Highlights
Contained below are selected ratios to average net assets and other supplemental
data for the period indicated for the International Small Company Equity
Portfolio.
<TABLE>
<CAPTION>
For the period
For the six June 30, 1998(2)
months ended through
March 31, 1999(3) September 30, 1998
--------------- ------------------
<S> <C> <C> <C>
Supplemental Data and Ratios:
Net Assets, End of Year (000s omitted) .......................... $ 481 $ 424
Ratios to Average Net Assets:
Net Investment Income ........................................ 0.52%(1) 2.63%(1)
Expenses ..................................................... 1.10%(1) 1.10%(1)
Decrease Reflected in Above Expense Ratio Due to Absorption of
Expenses by Bankers Trust ................................. 6.62%(1) 22.70%(1)
Portfolio Turnover Rate ......................................... 55% 11%
</TABLE>
- -------
(1) Annualized
(2) Commencement of operations
(3) Unaudited
See Notes to Financial Statements.
13
<PAGE>
International Small Company Equity Portfolio
Notes to Financial Statements (unaudited)
Note 1--Organization and Significant Accounting Policies
A. Organization
The International Small Company Equity Portfolio (the "Portfolio") is registered
under the Investment Company Act of 1940 (the "Act"), as amended, as an open-end
management investment company. The portfolio is a subtrust or "series" of BT
Investment Portfolios. The BT Investment Portfolios were organized as a master
trust fund on October 8, 1997 under the laws of the State of New York and
commenced operations on June 30, 1998. The Declaration of Trust permits the
Board of Trustees (the "Trustees") to issue beneficial interests in the
Portfolio.
B. Security Valuation
The Portfolio's investments listed or traded on National Stock Exchanges or
other domestic or foreign exchanges are valued based on the closing price of the
security traded on that exchange. 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 on the identified
cost basis.
All of the net investment income and realized and unrealized gains and losses
from the security and foreign currency transactions of the Portfolio are
allocated pro rata among the investors in the Portfolio at the time of such
determination.
D. Repurchase Agreements
The Portfolio may enter into repurchase agreements with financial institutions
deemed to be creditworthy by the Portfolio's Investment Advisers, subject to the
seller's agreement to repurchase such securities at a mutually agreed upon
price. Securities purchased subject to repurchase agreements are deposited with
the Portfolio's custodian, and pursuant to the terms of the repurchase agreement
must have an aggregate market value greater than or equal to the repurchase
price plus accrued interest at all times. If the value of the underlying
securities falls below the value of the repurchase price plus accrued interest,
the Portfolio will require the seller to deposit additional collateral by the
next business day. If the request for additional collateral is not met, or the
seller defaults on its repurchase obligation, the Portfolio maintains the right
to sell the underlying securities at market value and may claim any resulting
loss against the seller. However, in the event of default or bankruptcy by the
seller, realization and/or retention of the collateral may be subject to legal
proceedings.
E. Foreign Currency Transactions
The books and records of the Portfolio are maintained in U.S. dollars. All
assets and liabilities initially expressed in foreign currencies are converted
into U.S. dollars at prevailing exchange rates. Purchases and sales of
investment securities, dividend and interest income, and certain expenses are
translated at the rates of exchange prevailing on the respective dates of such
transactions.
F. Forward Foreign Currency Contracts
The Portfolio may enter into forward foreign currency contracts for the purpose
of settling specific purchases or sales of securities denominated in a foreign
currency or with respect to the Portfolio's investments. The net U.S. dollar
value of foreign currency underlying all contractual commitments held by the
Portfolio and the resulting unrealized appreciation or depreciation are
determined using prevailing exchange rates. With respect to forward foreign
currency contracts, losses in excess of amounts recognized 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 make initial margin deposits either 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 a partnership under Internal Revenue Code. Therefore, no
federal income tax provision is necessary.
14
<PAGE>
International Small Company Equity Portfolio
Notes to Financial Statements (unaudited)
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 0.15% of the Portfolio's average daily net
assets.
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 1.10% 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
1.10% 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.
The Portfolio is a participant with other affiliated entities in a revolving
credit facility and a discretionary demand line of credit (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
0.45%. No amounts were drawn down or outstanding under the credit facilities as
of and for the six months ended March 31, 1999.
Bankers Trust Company is a wholly owned subsidiary of Bankers Trust Corporation.
On November 30, 1998, Bankers Trust Corporation entered into an Agreement and
Plan of Merger with Deutsche Bank AG under which Bankers Trust Corporation would
merge with and into a subsidiary of Deutsche Bank AG. Deutsche Bank AG is a
major global banking institution that is engaged in a wide range of financial
services, including investment management, mutual funds, retail and commercial
banking, investment banking and insurance. The transaction is contingent upon
various regulatory approvals, and continuation of the Fund's advisory
relationship with Bankers Trust thereafter is subject to the approval of Fund
shareholders. If the transaction is approved and completed, Deutsche Bank AG, as
Bankers Trust's new parent company, will control its operations as investment
adviser. Bankers Trust believes that, under this new arrangement, the services
provided to the Fund will be maintained at their current level.
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, 1999, were
$343,345 and $227,038 respectively.
For federal income tax purposes, the tax basis of investments held at March 31,
1999 was $492,037. The aggregate gross unrealized appreciation for all
investments was $41,991 and the aggregate gross unrealized depreciation for all
investments was $103,728.
15
<PAGE>
International Small Company Equity Portfolio
Notes to Financial Statements (unaudited)
Note 4--Open Forward Foreign Currency Contracts
At March 31, 1999, the International Small Company Equity Portfolio had the
following open forward foreign currency contracts outstanding:
<TABLE>
<CAPTION>
Net Unrealized
Appreciation
Contracts to Deliver In Exchange For Settlement Date Value (US$) (Depreciation) (US$)
- -------------------- --------------- --------------- ----------- --------------------
Sales
- -----
<S> <C> <C> <C> <C> <C> <C>
British Pound 6,728 US Dollar 11,000 5/14/99 10,840 $ 160
British Pound 2,000 US Dollar 3,219 5/14/99 3,222 (4)
British Pound 7,913 US Dollar 12,847 5/14/99 12,749 97
British Pound 4,000 US Dollar 6,451 5/14/99 6,445 6
Canadian Dollar 15,000 US Dollar 9,851 5/18/99 9,945 (94)
Danish Krone 5,000 US Dollar 744 5/25/99 726 17.35
Euro 78,736 US Dollar 88,900 4/9/99 84,807 4,093
Euro 15,000 US Dollar 16,359 4/9/99 16,157 203
Euro 1,653 US Dollar 1,809 6/24/99 1,787 22
Japanese Yen 1,400,760 US Dollar 12,000 6/22/99 11,907 93
Japanese Yen 1,062,702 US Dollar 9,000 6/22/99 9,034 (34)
Japanese Yen 1,670,865 US Dollar 14,000 6/22/99 14,203 (203)
Japanese Yen 1,895,000 US Dollar 15,565 6/22/99 16,108 (544)
Japanese Yen 360,000 US Dollar 3,050 6/22/99 3,060 (11)
Japanese Yen 236,560 US Dollar 2,000 6/22/99 2,011 (11)
Japanese Yen 365,000 US Dollar 3,133 6/22/99 3,103 30
Japanese Yen 115,870 US Dollar 1,000 6/22/99 985 15
Japanese Yen 352,470 US Dollar 3,000 6/22/99 2,996 4
Japanese Yen 700,000 US Dollar 5,875 6/22/99 95,950 (75)
Norwegian Krone 104,830 US Dollar 13,494 6/11/99 13,478 16
Swedish Krona 392,279 US Dollar 48,150 6/11/99 47,713 437
- ----------------------------------------------------------------------------------------------------------
Total Sales $ 4,220
- ----------------------------------------------------------------------------------------------------------
Purchases
- ---------
British Pound 4,000 US Dollar 6,510 5/14/99 6,445 $ (65)
British Pound 2,000 US Dollar 3,254 5/14/99 3,222 (32)
British Pound 2,000 US Dollar 3,254 5/14/99 3,222 (32)
British Pound 2,000 US Dollar 3,273 5/14/99 3,222 (52)
British Pound 5,000 US Dollar 8,125 8/16/99 8,056 (70)
Danish Krone 5,000 US Dollar 743 5/25/99 726 (17)
Euro 15,000 US Dollar 16,240 4/9/99 16,197 (43)
Euro 15,000 US Dollar 16,364 4/9/99 16,197 (167)
Euro 5,000 US Dollar 5,448 4/9/99 5,399 (49)
Euro 4,000 US Dollar 4,358 4/9/99 4,319 (39)
Euro 2,000 US Dollar 2,165 4/9/99 2,160 (5)
Euro 15,000 US Dollar 16,157 4/9/99 16,197 41
Euro 5,000 US Dollar 5,629 4/9/99 5,386 (243)
Japanese Yen 8,298,900 US Dollar 71,211 6/22/99 70,545 (666)
Swedish Krona 110,000 US Dollar 13,494 6/11/99 13,379 (114)
Swedish Krona 24,700 US Dollar 3000 6/11/99 3,004 4
Total Purchases $ (1,548)
- ----------------------------------------------------------------------------------------------------------
Net Unrealized Appreciation $ 2,672
- ----------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
International Small Company Equity Portfolio
Notes to Financial Statements (unaudited)
Note 5--Risks of Investing in International Small Company Stocks
Historically, medium- and small-capitalization stocks have been more volatile in
price than the larger-capitalization stocks included in the S&P 500. Among the
reasons for the greater volatility of these securities are the less certain
growth prospects of smaller firms, the lower degree of liquidity in the markets
for such stocks, and the greater sensitivity of medium- and small-size companies
to changing economic conditions. In addition to exhibiting greater volatility,
medium and small-size company stocks may fluctuate independently of larger
company stocks.
Medium- and small-size stocks may decline in price as large company stocks rise,
or rise in price as large company stocks decline.
Note 6--Subsequent Event
Subsequent to period end, the portfolio has entered into a $100,000,000 364-day
senior unsecured committed revolving credit facility ("the facility") with two
lenders. The borrowings shall bear interest at a rate based on the Federal Funds
rate. A commitment fee is charged on the unused portion of the facility. The
facility replaces the revolving credit facility described in footnote 2.
17
<PAGE>
This page intentionally left blank.
<PAGE>
This page intentionally left blank.
<PAGE>
Investment Advisor and Administrator of the Portfolio
Bankers Trust Company
130 Liberty Street
New York, NY 10006
Distributor
ICC Distributors, Inc.
Two Portland Square
Portland, ME 04101
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
[GRAPHIC]
For information on how to invest, shareholder account information and current
price and yield information, please contact your relationship manager or write
to us at: BT Service Center
P.O. Box 419210
Kansas City, MO 64141-6210
or call our toll-free number: 1-800-730-1313
This report must be preceded or accompanied by a current prospectus for the
Fund.
International Small Company Equity Fund CUSIP #055922686
BT Investment Funds 808 SA (3/99)
Distributed by:
ICC Distributors, Inc.
Two Portland Square
Portland, ME 04101
