<PAGE>
[GRAPHIC OMITTED] SEPTEMBER 30, 1999
BT Mutual Funds
SmallCap Fund
Annual Report
TRUST: BT INVESTMENT FUNDS
INVESTMENT ADVISOR: BANKERS TRUST COMPANY
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Small Cap Fund
Table of Contents
- --------------------------------------------------------------------------------
Letter to Shareholders .......................................................3
Small Cap 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
Small Cap 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
Proxy Results ...............................................................16
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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.
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2
<PAGE>
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Small Cap Fund
Letter to Shareholders
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We are pleased to present you with this annual report for the Small Cap 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
Small capitalization growth stocks experienced significant volatility throughout
the twelve months ended September 30, 1999. Small cap relative performance also
diverged rather dramatically from the first half of this fiscal year to the
second. For the first half, equities in general were strong, but the small cap
sector lagged, as concerns over both foreign and domestic economies kept
investor preference toward large-capitalization stocks. During the second half
of the fiscal year, equities in general produced lackluster performance, and the
small cap sector, as measured by the Russell 2000 Index, returned 8.25%, far
outperforming the S&P 500 return of 0.36% for the same six months. In fact,
small capitalization stocks, and small capitalization growth stocks in
particular, were the best performing U.S. equity sector for the six months ended
September 30, 1999. While small cap stocks still underperformed large caps for
the fiscal year, the growth segment within the small cap sector outperformed
both large cap and mid cap stocks for the twelve months.
The first half of the Fund's fiscal year began in October 1998 with a
continuation of the summer's sharp sell off in small cap growth stocks as well
as in the broader equity markets, followed by an even more pronounced recovery
quickly thereafter.
o The U.S. stock markets reacted favorably to three Federal Reserve Board
easings in the fall of 1998, interest rate cuts in a number of other
countries, better coordination of international monetary policy, receding
concerns of a global credit crunch, positive earnings reports, and an ongoing
strong U.S. economy with low inflation and healthy consumer spending. This
market recovery was particularly apparent in the sharp improvement of
internet-related stocks.
o The small cap market rally that began in mid-October continued into the first
quarter of 1999, only to become subject to fears and uncertainty again in
February. Ironically, a very positive economic and broader market environment
raised concerns that, at best, the Federal Reserve Board was on hold with
respect to interest rates and, perhaps, may act to raise rates at the first
sign of inflation.
o After the February sell-off, March witnessed a rebound in the small cap
equity market once again, as subsequent economic reports pointed to a
continuation of economic growth with little or no evidence of inflation.
Investors continued to be attracted to companies and industries exhibiting
strong growth trends, such as those in the technology and internet sectors.
Still, investors' preference for larger, more liquid names remained.
The second half of the Fund's fiscal year began with a sharp shift in investor
preference from larger, growth and technology-oriented names to smaller, value
and more economically cyclical stocks, following economic data indicating that
the worst of the Asian financial crisis was apparently over.
o The combination of expectations of improving fundamentals as well as low
valuations for long-ignored economically sensitive stocks, such as those in
the paper, chemical and steel industries, served to propel these
value-oriented stocks at the expense of larger company growth stocks during
both April and May.
o This broadening of the stock market also included strong performance by
smaller and mid-sized companies as worries about world economies abated.
o Still, market volatility continued throughout the second calendar quarter as
strong economic data led the Federal Reserve Board to officially shift in
mid-May from a neutral stance to a bias toward raising interest rates.
Additional economic data released throughout the quarter continued to show
robust U.S. economic growth with little sign of inflation.
o Investors began to believe that the Federal Reserve Board would raise rates
in a limited manner rather than make a series of increases, and equity
markets reflected this optimism toward the end of June with broad-based
strength.
o On June 30, the Federal Reserve Board did, in fact, increase the fed funds
rate by 0.25% and signaled it would be resuming its neutral stance.
The third calendar quarter witnessed weakness across all U.S. equity sectors on
renewed fears of further interest rate increases.
o Economic data pointed to a still robust U.S. economy, a slight uptick in the
rate of wage growth, and stronger global economic growth in Europe, Asia, and
even Japan.
o Financial markets grew concerned that synchronized global growth would lead
to inflation.
o Against this backdrop, the Federal Reserve Board raised the fed funds rate by
another 0.25% on August 24.
o In September, the U.S. equity markets continued to be volatile and nervous,
as the U.S. economy remained vibrant and economic momentum continued to build
around the world.
Throughout the annual period, small cap companies exhibited strong earnings
growth, positive fundamentals, and attractive relative valuations. In fact,
small cap relative P/E ratios as compared to large cap P/E ratios were, as of
September 30, 1999, still at multi-decade lows.
INVESTMENT REVIEW
The Fund significantly outperformed its benchmarks for the twelve month period,
particularly well worth noting given the extremely high volatility in the small
cap equity market during this annual period. Specific stock selection and sector
positioning bolstered Fund performance.
For example, in the fourth quarter of 1998, the Fund was overweight in the two
best performing sectors, i.e. technology and health care. Also having a positive
impact on relative performance were underweight positions in the energy,
financial services, and materials & processing sectors. In the first quarter of
1999, technology continued to be one of the top performing sectors and the Fund
remained overweight there.
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Ten Largest Stock Holdings
- --------------------------------------------------------------------------------
Mercury Interactive Corp. 3.70% Pinnacle Systems, Inc. 1.84%
Calpine Corp. 2.60% Medical Manager Corp. 1.81%
ATMI, Inc. 2.12% Transwitch Corp. 1.74%
Micrel, Inc. 2.01% T-HQ, Inc. 1.68%
Hispanic Broadcasting Corp. 1.92% Pacific Sunwear of California 1.64%
- --------------------------------------------------------------------------------
3
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Small Cap Fund
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Letter to Shareholders
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Periods ended September 30, 1999 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> <C> <C> <C> <C> <C> <C> <C>
Small Cap Fund1
(inception 10/21/93) 46.52% 23.72% 149.41% 189.31% 46.52% 7.35% 20.06% 19.58%
- ------------------------------------------------------------------------------------------------------------------
Russell 2000 Index2 19.07% 28.43% 79.30% 79.36% 19.07% 8.70% 12.39% 10.38%
- ------------------------------------------------------------------------------------------------------------------
Russell 2000 Growth Index2 32.63% 22.97% 77.50% 74.02% 32.63% 7.14% 12.16% 9.81%
- ------------------------------------------------------------------------------------------------------------------
Lipper Small Cap Growth
Average/3 43.76% 33.58% 105.33% 103.88% 43.76% 9.58% 15.03% 12.41%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Diversification of Portfolio Investments
By Theme as of September 30, 1999
(percentages are based on market value)
New Consumer 8%
New Healthcare Paradigm 4%
Energizing the Globe 11%
Our Stengthening Financial Structure 5%
Stores of Value 5%
Miscellaneous/1 18%
Client Server Computing 5%
Managing the Information Age 4%
The Ubiquitous Semiconductor 9%
Cash 15%
America's Changing Leisure Time 7%
Special Situations 5%
Life on the Net 4%
- ----------
1/ Includes themes with weightings of less than 4%.
The Fund's relative performance was impacted negatively by investors' sharp
shift from growth to value stocks in April and May. More specifically, the
Fund's overweight positions in energy and technology helped during the second
quarter of 1999, but its underweight positions in such top performing
value-oriented sectors as autos & transportation, materials & processing, and
utilities detracted from Fund performance. During the third calendar quarter,
energy and technology, where the Fund remained overweight, continued to
outperform, and the value-oriented sectors that did well in the previous quarter
now underperformed. Thus the Fund's underweighting in these poorer performing
sectors had a positive effect.
MANAGER OUTLOOK
The U.S. continues to experience tight labor markets, although signs of
inflation remain scant. Internationally, few inflationary pressures are expected
due to the economic capacity that exists. Stronger economic growth abroad may
weigh on U.S. financial markets, as synchronized global growth raises the fear
of overheating in the U.S. However, we continue to believe that a cycle of
full-blown overheating in the U.S. economy is unlikely due to the slack still
remaining in overseas markets. We also expect the Federal Reserve Board to stay
vigilant on the inflation front.
Although we anticipate future periods of volatility in the marketplace while
global and domestic economic and political events run their course, we remain
optimistic regarding small cap stocks in general. Small cap fundamentals remain
strong, earnings growth healthy, and relative valuations attractive. We expect
strong third quarter earnings to be reported shortly and, to date, have seen a
relative scarcity of negative earnings preannouncements.
Given the recent high volatility in the stock market, it is also important to
keep in mind that 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 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 on weakness.
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.
We will continue to monitor economic conditions and their effect on financial
markets as we seek long-term capital growth.
/s/ Mary P. Dugan /s/ Audrey M.T. Jones /s/ John P. Callaghan
Mary P. Dugan, Audrey M.T. Jones, and John P. Callaghan
Portfolio Managers of the
Small Cap Portfolio
September 30, 1999
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. 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.
2/ Indices are unmanaged, and investments cannot be made in an index. The
Russell 2000 Index is a capitalization weighted index which is comprised of
2000 of the smallest stocks in the Russell 3000 Index. The Russell 2000
Growth Index is comprised of securities in the Russell 2000 Index with a
greater than average growth orientation.
3/ Lipper figures represent the average of the total returns reported by all of
the mutual funds designated by Lipper, Inc. as falling into the respective
categories indicated. These figures do not reflect sales charges.
4
<PAGE>
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Small Cap Fund
Performance Comparison
- --------------------------------------------------------------------------------
Comparison of Change in
Value of a $10,000
Investment in the
Small Cap Fund and the
Russell 2000 Index since
October 31, 1993.
- ------------------------------------------
Total Return for the Year
Ended September 30, 1999
One Year Five Year Since 10/21/931
46.52% 20.06%/2 19.58%/2
1/ The Fund's inception date.
2/ Annualized.
Investment return and principal
value will fluctuate so that shares,
when redeemed, may be worth more
or less than their original cost.
- ------------------------------------------
Small Cap Fund - $28,931 Russell 2000 Index - $17,936
- ------------------------ ----------------------------
Oct-93 10000 Oct-93 10000
Mar-94 10375 Mar-94 9735
Sep-94 11451 Sep-94 10004
Mar-95 14107 Mar-95 10272
Sep-95 18263 Sep-95 12345
Mar-96 21049 Mar-96 13256
Sep-96 23074 Sep-96 13967
Mar-97 17517 Mar-97 13933
Sep-97 27217 Sep-97 18602
Mar-98 26987 Mar-98 19788
Sep-98 19745 Sep-98 15063
Mar-99 26616 Mar-99 16570
Sep 99 28931 Sep 99 17936
Past performance is not indicative of future performance. Performance figures
assume the reinvestment of dividends and capital gain distributions.
5
<PAGE>
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Small Cap Fund
Statement of Assets and Liabilities September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets
Investment in Small Cap Portfolio, at Value .............................................. $ 215,304,983
Receivable for Shares of Beneficial Interest Subscribed .................................. 1,300,011
Prepaid Expenses and Other ............................................................... 27,468
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Total Assets ................................................................................ 216,632,462
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Liabilities
Due to Bankers Trust ..................................................................... 65,906
Payable for Shares of Beneficial Interest Redeemed ....................................... 251,632
Accrued Expenses and Other ............................................................... 42,624
-------------
Total Liabilities ........................................................................... 360,162
-------------
Net Assets .................................................................................. $ 216,272,300
=============
Composition of Net Assets
Paid-in Capital .......................................................................... $ 145,324,751
Accumulated Net Realized Gain from Investment Transactions ............................... 31,982,126
Net Unrealized Appreciation on Investment ................................................ 38,965,423
-------------
Net Assets .................................................................................. $ 216,272,300
=============
Net Asset Value, Offering and Redemption Price Per Share (net assets divided by
shares outstanding) ......................................................................... $ 21.89
=============
Shares Outstanding ($0.001 par value per share, unlimited number of shares
of beneficial interest authorized) ....................................................... 9,881,175
=============
</TABLE>
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Statement of Operations For the year ended September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment Income
Expenses in Excess of Income Allocated from Small Cap Portfolio, net ..................... $ (188,887)
-------------
Expenses
Administration and Services Fees ......................................................... 1,327,846
Printing and Shareholder Reports ......................................................... 37,734
Professional Fees ........................................................................ 36,988
Registration Fees ........................................................................ 20,442
Trustees Fees ............................................................................ 6,013
Miscellaneous ............................................................................ 8,737
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Total Expenses ........................................................................... 1,437,760
Less Fees Waived/Expenses Reimbursed by Bankers Trust .................................... (105,550)
-------------
Net Expenses .......................................................................... 1,332,210
-------------
Expenses in excess of income ................................................................ (1,521,097)
-------------
Realized and Unrealized Gain on Investment
Net Realized Gain from Investment Transactions ........................................... 49,022,740
Net Change in Unrealized Appreciation/Depreciation on Investment ......................... 30,229,250
-------------
Net Realized and Unrealized Gain on Investment .............................................. 79,251,990
-------------
Net Increase in Net Assets from Operations .................................................. $ 77,730,893
=============
</TABLE>
See Notes to Financial Statements.
6
<PAGE>
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Small Cap Fund
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the For the
year ended year ended
September 30, 1999 September 30, 1998
------------------ ------------------
<S> <C> <C>
Increase (Decrease) in Net Assets from:
Operations
Expenses in Excess of Income ............................................. $ (1,521,097) $ (2,042,216)
Net Realized Gain from Investment Transactions ........................... 49,022,740 3,536,499
Net Change in Unrealized Appreciation/Depreciation on Investment ......... 30,229,250 (73,838,071)
-------------- --------------
Net Increase (Decrease) in Net Assets from Operations ....................... 77,730,893 (72,343,788)
-------------- --------------
Distributions to Shareholders
Net Realized Gain from Investment Transactions ........................... (593,090) (11,612,132)
In Excess of Net Realized Gains from Investment Transactions ............. -- (13,960,209)
-------------- --------------
Total Distributions ......................................................... (593,090) (25,572,341)
-------------- --------------
Capital Transactions in Shares of Beneficial Interest
Proceeds from Sales of Shares ............................................ 162,501,561 299,805,325
Dividend Reinvestments ................................................... 422,175 17,676,714
Cost of Shares Redeemed .................................................. (196,099,298) (333,578,059)
-------------- --------------
Net Decrease from Capital Transactions in Shares of Beneficial Interest ..... (33,175,562) (16,096,020)
-------------- --------------
Total Increase (Decrease) in Net Assets ..................................... 43,962,241 (114,012,149)
Net Assets
Beginning of Year ........................................................... 172,310,059 286,322,208
-------------- --------------
End of Year ................................................................. $ 216,272,300 $ 172,310,059
============== ==============
</TABLE>
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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 Small Cap Fund.
<TABLE>
<CAPTION>
For the years ended
September 30,
--------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net Asset Value, Beginning of Period ...................... $ 14.96 $ 23.68 $ 21.66 $ 18.50 $ 11.60
-------- -------- -------- -------- --------
Income from Investment Operations
Expenses in Excess of Income ........................... (0.15) (0.18) (0.14) (0.12) (0.04)
Net Realized and Unrealized Gain (Loss)
on Investment ....................................... 7.13 (6.24) 3.58 4.65 6.94
-------- -------- -------- -------- --------
Total Income (Loss) from Investment Operations ............ 6.98 (6.42) 3.44 4.53 6.90
-------- -------- -------- -------- --------
Distributions to Shareholders
Net Realized Gain from Investment Transactions ......... (0.05) (1.04) (1.42) (1.37) --
In Excess of Net Realized Gains ........................ -- (1.26) -- -- --
-------- -------- -------- -------- --------
Total Distributions ....................................... (0.05) (2.30) (1.42) (1.37) --
-------- -------- -------- -------- --------
Net Asset Value, End of Period ............................ $ 21.89 $ 14.96 $ 23.68 $ 21.66 $ 18.50
======== ======== ======== ======== ========
Total Investment Return ................................... 46.52% (28.38)% 17.90% 26.41% 59.48%
Supplemental Data and Ratios:
Net Assets, End of Period (000s omitted) ............... $216,272 $172,310 $286,322 $242,236 $122,935
Ratios to Average Net Assets:
Expenses in Excess of Income ........................ (0.74)% (0.87)% (0.89)% (0.70)% (0.46)%
Expenses, Including Expenses of the
Small Cap Portfolio ............................... 1.25% 1.25% 1.25% 1.25% 1.25%
Decrease Reflected in Above Expense Ratio Due to
Fees Waived/Expenses Reimbursed by Bankers Trust .. 0.21% 0.19% 0.03% 0.22% 0.34%
</TABLE>
See Notes to Financial Statements.
7
<PAGE>
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Small Cap 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 Small Cap Fund (the "Fund") is one of the
funds offered to investors by the Trust. The Fund began operations on October
21, 1993. The Fund seeks to achieve its investment objective by investing
substantially all of its assets in the Small Cap Portfolio (the "Portfolio").
The Portfolio is an open-end management investment company registered under the
Act. The value of the investment in the Portfolio reflects the Fund's
proportionate interest in the net assets of the Portfolio. At September 30,
1999, the Fund's investment was approximately 100% 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
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 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. 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 to distribute
substantially all of its taxable income to shareholders. The Fund may
periodically make reclassifications among certain of its capital accounts as a
result of the timing and characterization of certain income and capital gains
distributions determined annually in accordance with federal tax regulations
which may differ from generally accepted accounting principles.
F. Other
The Trust accounts separately for the assets, liabilities, and operations of
each fund. Expenses directly attributable to a fund are charged to that fund,
while expenses which are attributable to all of the Trust's funds are allocated
among them. 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.
ICC Distributors, Inc. provides distribution services to the Fund.
Bankers Trust was a wholly owned subsidiary of Bankers Trust Corporation ("BT
Corp."). On June 4, 1999, BT Corp. was acquired by Deutsche Bank AG ("Deutsche
Bank"). As a result of the transaction, Bankers Trust became an indirect
wholly-owned subsidiary of Deutsche Bank.
Note 3--Shares of Beneficial Interest
At September 30, 1999, there were an unlimited number of shares of beneficial
interest authorized. Transactions in shares of beneficial interest were as
follows:
For the year ended For the year ended
September 30, 1999 September 30, 1998
--------------------------- ---------------------------
Shares Amount Shares Amount
------ ------ ------ ------
Sold 8,607,904 $ 162,501,561 15,646,669 $ 299,805,325
Reinvested 24,817 422,175 1,021,185 17,676,714
Redeemed (10,266,076) (196,099,298) (17,243,267) (333,578,059)
----------- ------------ ----------- ------------
Net Decrease (1,633,355) $ (33,175,562) (575,413) $ (16,096,020)
=========== ============= =========== =============
8
<PAGE>
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Small Cap Fund
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Trustees of BT Investment Funds and
Shareholders of Small Cap 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 Small Cap Fund (one of the funds comprising BT Investment Funds, hereafter
referred to as the "Fund") at September 30, 1999, 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, 1999 by correspondence with the
transfer agent, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Baltimore, Maryland
November 16, 1999
- --------------------------------------------------------------------------------
Tax Information (Unaudited For the Year Ended September 30, 1999)
- --------------------------------------------------------------------------------
The Fund made ordinary distributions during the year ending September 30, 1999,
of which $0.02 per share qualify for the dividends received deduction available
to corporate shareholders.
9
<PAGE>
- --------------------------------------------------------------------------------
Small Cap Portfolio
Schedule of Portfolio Investments September 30, 1999
- --------------------------------------------------------------------------------
Shares Description Value
------ ----------- -----
Common Stocks - 85.6%
America's Changing Leisure Time - 6.2%
83,700 Championship Auto Racing/1 .................... $ 2,176,200
91,700 Cinar Corp. - Class B Sub Mg/1 ................ 2,773,925
54,200 Hispanic Broadcasting Corp./1 ................. 4,125,975
35,800 P.F. Changs China Bistro, Inc./1 .............. 774,175
84,050 T-HQ, Inc./1 .................................. 3,624,656
-------------
13,474,931
-------------
Client-Server Computing - 5.2%
90,800 BEA Systems, Inc./1 ........................... 3,206,375
123,500 Mercury Interactive Corp./1 ................... 7,973,469
-------------
11,179,844
-------------
Energizing The Globe - 11.1%
103,800 BJ Services Co./1 ............................. 3,302,138
65,900 Calpine Corp./1 ............................... 5,605,619
44,000 Cooper Cameron Corp./1 ........................ 1,661,000
65,900 Devon Energy Corp. ............................ 2,730,731
174,100 Global Industries, Ltd./1 ..................... 1,414,563
111,000 Noble Drilling Corp./1 ........................ 2,428,125
113,300 Sante Fe International ........................ 2,443,031
54,700 Smith International, Inc./1 ................... 2,215,350
83,300 Tidewater, Inc. ............................... 2,124,150
-------------
23,924,707
-------------
Flourishing In The Managed
Care Environment - 3.2%
163,200 Caremark Rx/1 ................................. 918,000
78,500 Medical Manager Corp./1 ....................... 3,905,375
76,000 Trigon Healthcare, Inc./1 ..................... 2,194,500
-------------
7,017,875
-------------
Interactive Media - 3.0%
58,500 ANTEC Corp./1 ................................. 3,107,812
72,000 Polycom Corp./1 .............................. 3,431,250
-------------
6,539,062
-------------
Life On The Net - 4.3%
38,300 Art Technology Group/1 ........................ 1,457,794
26,400 Cheap Tickets, Inc./1 ......................... 854,700
45,600 Infospace.com, Inc./1 ......................... 1,875,300
78,500 Insight Communications/1 ...................... 2,247,062
39,700 Interworld Corp. .............................. 1,434,162
55,200 National Info. Consortium/1 ................... 1,362,750
-------------
9,231,768
-------------
Life Sciences Revolution - 3.2%
45,900 Alkermes, Inc./1 .............................. 1,322,494
176,600 Cell Genesys, Inc./1 .......................... 1,390,725
95,800 Enzon, Inc./1 ................................. 2,921,900
175,300 Nanogen, Inc./1 ............................... 1,270,925
-------------
6,906,044
-------------
Managing The Information Age - 3.9%
21,200 Check Point Software/1 ........................ 1,790,075
50,500 Dendrite International/1 ...................... 2,386,125
11,000 Emulex Corp./1 ................................ 944,625
21,100 Investment Technology Group, Inc. ............. 485,300
71,600 Whittman-Hart, Inc./1 ......................... 2,776,737
-------------
8,382,862
-------------
<PAGE>
Shares Description Value
------ ----------- -----
Move to Outsourcing - 1.5%
20,900 Bisys Group, Inc./1 ........................... $ 980,341
32,250 Eagle USA Airfreight, Inc./1 .................. 965,484
28,300 US Freightways Corp. .......................... 1,340,713
-------------
3,286,538
-------------
New Consumer - 8.3%
72,800 Ann Taylor Stores Corp./1 ..................... 2,975,700
60,750 Fossil Inc./1 ................................. 1,644,047
57,200 K-Swiss ....................................... 1,805,375
126,300 Pacific Sunwear of California1 ................ 3,540,347
111,500 Too, Inc. ..................................... 2,000,031
55,900 Williams-Sonoma, Inc./1 ....................... 2,714,644
82,200 Zale Corp./1 .................................. 3,149,288
-------------
17,829,432
-------------
New Health Care Paradigm - 5.5%
66,900 Accredo Health, Inc./1 ........................ 2,107,350
20,000 ANDRX Corp./1 ................................. 1,170,625
139,300 IVAX Corp./1 .................................. 2,298,450
54,600 Medquist, Inc./1 .............................. 1,825,688
73,200 Resmed, Inc./1 ................................ 2,420,175
80,000 Sonosight, Inc./1 ............................. 2,090,000
-------------
11,912,288
-------------
Our Strengthening Financial Structure - 5.1%
94,900 Annuity and Life Re (Holdings) ................ 2,360,637
84,100 Banks United Corp., - Class A ................ 2,722,737
30,000 Golden State Bank ............................. 538,125
130,200 Labranche & Company ........................... 1,456,613
80,366 Legg Mason, Inc. .............................. 3,079,022
66,200 Mutual Risk Management Ltd. ................... 810,950
-------------
10,968,084
-------------
Productivity Enhancement - 2.5%
73,300 Cognex Corp./1 ................................ 2,212,744
100,800 Pairgain Technologies/1 ....................... 1,285,200
52,800 Symantec Corp./1 .............................. 1,899,150
-------------
5,397,094
-------------
Return to Home Ownership - 0.4%
26,300 Linens 'N Things, Inc./1 ...................... 887,625
-------------
Revaluation of Real Estate - 0.1%
8,600 LNR Property Corp. ............................ 175,225
-------------
Special Situations - 5.2%
68,900 Armco, Inc./1 ................................. 482,300
120,900 Atlantic Coast Airlines, Inc./1 ............... 2,145,975
75,400 CSK Auto Corp./1 .............................. 1,644,662
93,400 Pinnacle Systems, Inc./1 ...................... 3,957,825
16,200 Rayonier, Inc. ................................ 680,400
96,300 Universal Foods Corp./1 ....................... 2,208,881
-------------
11,120,043
-------------
Stores of Value - 4.8%
52,900 99 Cents Only Stores/1 ........................ 1,911,013
65,300 American Eagle Outfitters/1 ................... 3,162,969
62,500 Ames Department Stores, Inc./1 ................ 1,992,188
107,700 BJ's Wholesale Club, Inc./1 ................... 3,183,881
-------------
10,250,051
-------------
See Notes to Financial Statements.
10
<PAGE>
- --------------------------------------------------------------------------------
Small Cap Portfolio
Schedule of Portfolio Investments September 30, 1999
- --------------------------------------------------------------------------------
Shares Description Value
------ ----------- -----
Telecommunications - 2.8%
20,300 Harmonic Lightwaves, Inc./1 ................... $ 2,655,494
56,300 Viatel, Inc./1 ................................ 1,664,369
42,000 WinStar Communications, Inc./1 ................ 1,640,625
-------------
5,960,488
-------------
The Ubiquitous Semiconductor - 9.3%
29,800 Alpha Industries, Inc./1 ..................... 1,680,906
122,300 ATMI, Inc./1 ................................. 4,563,319
26,100 Credence Systems Corp./1 ..................... 1,171,237
58,900 DII Group, Inc./1 ............................ 2,072,544
80,400 Lattice Semiconductor Corp. .................. 2,386,875
99,800 Micrel, Inc./1 ............................... 4,328,825
65,550 Transwitch Corp./1 ........................... 3,736,350
-------------
19,940,056
-------------
Total Common Stocks (Cost $147,187,050) .................. 184,384,017
-------------
Shares Description Value
------ ----------- -----
Short Term Instrument - 17.3%
Mutual Fund
37,204,894 Institutional Cash Management Fund
(Cost $37,204,894) .......................... $ 37,204,894
-------------
Total Investments (Cost $184,391,944) ........... 102.9% 221,588,911
Liabilities in Excess of Other Assets ........... (2.9)% (6,283,901)
----- -------------
Net Assets ...................................... 100.0% $ 215,305,010
===== =============
- -----------
1/ Non-Income Producing Security.
See Notes to Financial Statements.
11
<PAGE>
- --------------------------------------------------------------------------------
Small Cap Portfolio
Statement of Assets and Liabilities September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets
Investments, at Value (Cost of $184,391,944) ....................... $221,588,911
Receivable for Fund Shares Sold .................................... 979,955
Receivable for Securities Sold ..................................... 4,323,575
Dividends and Interest Receivable1 ................................. 151,440
------------
Total Assets .......................................................... 227,043,881
------------
Liabilities
Payable for Securities Purchased ................................... 11,601,729
Due to Bankers Trust ............................................... 100,068
Accrued Expenses and Other ......................................... 37,074
------------
Total Liabilities ..................................................... 11,738,871
------------
Net Assets ............................................................ $215,305,010
============
Composition of Net Assets
Paid-in Capital .................................................... $178,108,043
Net Unrealized Appreciation on Investments ......................... 37,196,967
------------
Net Assets ............................................................ $215,305,010
============
</TABLE>
1/ Includes $146,899 from the Portfolio's investment in the Institutional Cash
Management Fund.
- --------------------------------------------------------------------------------
Statement of Operations For the year ended September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment Income
Dividends .......................................................... $ 1,037,663
------------
Expenses
Advisory Fees ...................................................... 1,290,625
Administration and Services Fees ................................... 204,425
Professional Fees .................................................. 32,843
Trustees Fees ...................................................... 6,147
Miscellaneous ...................................................... 1,643
------------
Total Expenses ..................................................... 1,535,683
Less Fees Waived/Expenses Reimbursed by Bankers Trust .............. (309,133)
------------
Net Expenses .................................................... 1,226,550
------------
Expenses in Excess of Investment Income ............................... (188,887)
------------
Realized and Unrealized Gain on Investments
Net Realized Gain from Investment Transactions ..................... 49,022,746
Net Change in Unrealized Appreciation/Depreciation on Investments .. 30,229,254
------------
Net Realized and Unrealized Gain on Investments ....................... 79,252,000
------------
Net Increase in Net Assets from Operations ............................ $ 79,063,113
============
</TABLE>
See Notes to Financial Statements.
12
<PAGE>
- --------------------------------------------------------------------------------
Small Cap Portfolio
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the For the
year ended year ended
September 30, 1999 September 30, 1998
------------------ ------------------
<S> <C> <C>
Increase (Decrease) in Net Assets from:
Operations
Expenses in Excess of Investment Income ............................... $ (188,887) $ (523,836)
Net Realized Gain from Investment Transactions ........................ 49,022,746 3,536,500
Net Change in Unrealized Appreciation/Depreciation on Investments ..... 30,229,254 (73,816,547)
------------- -------------
Net Increase (Decrease) in Net Assets from Operations .................... 79,063,113 (70,803,883)
------------- -------------
Capital Transactions
Proceeds from Capital Invested ........................................ 160,986,273 320,120,726
Value of Capital Withdrawn ............................................ (198,015,755) (361,923,813)
------------- -------------
Net Decrease in Net Assets from Capital Transactions ..................... (37,029,482) (41,803,087)
------------- -------------
Total Increase (Decrease) in Net Assets .................................. 42,033,631 (112,606,970)
Net Assets
Beginning of Year ........................................................ 173,271,379 285,878,349
------------- -------------
End of Year .............................................................. $ 215,305,010 $ 173,271,379
============= =============
</TABLE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
Contained below are selected ratios to average net assets and other supplemental
data for the periods indicated for the Small Cap Portfolio.
<TABLE>
<CAPTION>
For the years ended September 30,
-------------------------------------------------------------
1999 1998 1997 1996 1995
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Income from Investment Operations
Supplemental Data and Ratios:
Net Assets, End of Period (000s omitted) ..... $215,305 $173,271 $285,878 $245,615 $123,828
Ratios to Average Net Assets:
Net Investment Income (Expenses in
Excess of Investment Income) ............ (0.09)% (0.22)% (0.24)% (0.05)% 0.19%
Expenses .................................. 0.60% 0.60% 0.60% 0.60% 0.60%
Decrease Reflected in Above Expense
Ratio Due to Fees Waived/Expenses
Reimbursed by Bankers Trust ............. 0.15% 0.17% 0.17% 0.17% 0.19%
Portfolio Turnover Rate ...................... 159% 182% 188% 159% 161%
</TABLE>
See Notes to Financial Statements.
13
<PAGE>
- --------------------------------------------------------------------------------
Small Cap Portfolio
Notes to Financial Statements
- --------------------------------------------------------------------------------
Note 1--Organization and Significant Accounting Policies
A. Organization
The Small Cap Portfolio (the "Portfolio") is registered under the Investment
Company Act of 1940 (the "Act"), as amended, as an open-end management
investment company. The Portfolio was organized on August 6, 1993 as an
unincorporated trust under the laws of New York and began operations on October
21, 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 their closing price.
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 and expenses are recorded
on the accrual basis. Interest income includes amortization of premium and
discount on investments. Realized gains and losses from securities transactions
are recorded by the identified cost basis.
All of the net investment income and realized and unrealized gains and losses
from the securities transactions of the Portfolio are allocated pro rata among
the investors in the Portfolio at the time of such determination.
D. Federal Income Taxes
The Portfolio is considered a Partnership under the Internal Revenue Code.
Therefore, no federal income tax provision is necessary.
E. 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 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 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 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, 1999 amounted to $854,409 and are included in
dividend income.
At September 30, 1999, the Portfolio was a participant with other affiliated
entities in a revolving credit facility in the amount of $100,000,000, which
expires April 29, 2000. A commitment fee of .10% per annum on the average daily
amount of the available commitment is payable on a quarterly basis and
apportioned equally among all participants. On October 8, 1999, the revolving
credit facility was increased to $150,000,000. No amounts were drawn down or
outstanding under the credit facility for the year ended September 30, 1999.
Bankers Trust was a wholly owned subsidiary of Bankers Trust Corporation ("BT
Corp."). On June 4, 1999, BT Corp. was acquired by Deutsche Bank AG ("Deutsche
Bank"). As a result of the transaction, Bankers Trust became an indirect
wholly-owned subsidiary of Deutsche Bank.
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, 1999 were
$294,641,612 and $344,889,776, respectively.
The tax basis of investments held at September 30, 1999 was $184,507,934. The
aggregate gross unrealized appreciation for all investments was $44,802,597 and
the aggregate gross unrealized depreciation for all investments was $7,721,620.
14
<PAGE>
- --------------------------------------------------------------------------------
Small Cap Portfolio
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Trustees and Holders of Beneficial Interest of
Small Cap 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 Small Cap Portfolio (hereafter
referred to as the "Portfolio") at September 30, 1999, 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, 1999 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Baltimore, Maryland
November 16, 1999
15
<PAGE>
- --------------------------------------------------------------------------------
Small Cap Fund
Proxy Results (unaudited)
- --------------------------------------------------------------------------------
For the year ended September 30, 1999, the Bankers Trust Funds shareholders
voted on the following proposals at the annual meeting of shareholders on
October 8, 1999 or as adjourned. The description of each proposal and number of
shares voted are as follows:
1. To elect the Bankers Trust Funds Board of Trustees.
Shares Shares Voted
Voted Withheld
For Authority
--------- ------------
Messr Biggar 7,590,046 12,987
Messr Dill 7,590,046 12,987
Messr Hale 7,590,046 12,987
Messr Langton 7,590,046 12,987
Messr Saunders 7,590,046 12,987
Messr Van Benschoten 7,590,046 12,987
Dr. Gruber 7,590,046 12,987
Dr. Herring 7,590,046 12,987
2. To approve the New Investment Advisory Agreement with Bankers Trust Company.
For Against Abstain
--------- ------- -------
7,596,993 1,445 4,595
3. To approve the New Investment Advisory Agreement with Morgan Grenfell, Inc.
For Against Abstain
--------- ------- -------
7,575,992 22,557 4,484
4. To approve the New Investment Sub-advisory Agreement with Bankers Trust
Company.
For Against Abstain
--------- ------- -------
7,596,993 1,445 4,595
5. To ratify the selection of PricewaterhouseCoopers LLP as the independent
accountants of the Fund and its corresponding Portfolio.
For Against Abstain
--------- ------- -------
7,592,466 8,466 2,101
16
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<PAGE>
[Graphic Omitted] Bankers Trust
Architects of Value
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.
Small Cap Fund CUSIP #055922769
BT Investment Funds 498ANN (9/99)
Distributed by:
ICC Distributors, Inc.
Two Portland Square
Portland, ME 04101
