June 30, 1999
[GRAPHIC] BT Mutual Funds
Quantitative
Equity Fund
Semi-Annual Report
TRUST: BT INVESTMENT FUNDS
INVESTMENT ADVISOR: BANKERS TRUST COMPANY
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Quantitative Equity Fund
Table of Contents
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Letter to Shareholders ........................................... 3
Quantitative Equity Fund
Schedule of Investments ....................................... 6
Statement of Assets and Liabilities ........................... 7
Statement of Operations ....................................... 7
Statement of Changes in Net Assets ............................ 8
Financial Highlights .......................................... 8
Notes to Financial Statements ................................. 9
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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
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Quantitative Equity Fund
Letter to Shareholders
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We are pleased to present you with this first semi-annual report for the
Quantitative 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. Since the Fund has
not been in operation for a full six months, performance is being reported for
the life of the Fund as of June 30, 1999.
MARKET ACTIVITY
As the global economy started to improve, the domestic stock market continued a
volatile, but record-breaking run during the second quarter of 1999. The S&P 500
Index advanced past the 1,300 mark it had first closed above late in the first
quarter. The Dow Jones Industrial Average rose to new highs, passing the 11,000
level within weeks after reaching the 10,000 milestone.
Large cap value stocks outperformed their growth brethren for the first time in
nearly 1 1/2 years. Stronger performance in value stocks can be attributed, in
part, to stronger performance in energy-related stocks, rebounding with higher
oil prices. Additionally, positive corporate earnings surprises and a rotation
into cyclicals led to stronger returns in sectors that have long been out of
favor. While technology stocks pushed large cap growth stocks back on top for
the month of June, the value sectors' strength for the second quarter was enough
to give them the lead for the semi-annual period as a whole. As investor
sentiment shifted, small and mid capitalization stocks also got a boost in the
second quarter, outperforming large cap stocks for the first time in seven
quarters.
The merger market experienced a banner quarter with one of the most active
markets since the late 1980s. While headlines in the financial press were
dominated by concerns over rising interest rates and Internet-dominated initial
public offering activity, merger and acquisition activity during the second
quarter of 1999 advanced to the second best quarter ever. The volume of
announced U.S. merger and acquisition transactions reached over $540 billion, as
compared to $340 billion in the first calendar quarter.
INVESTMENT REVIEW
The Fund seeks a total return greater than that of the S&P 500 Index by
following a quantitative strategy that integrates an exposure to the S&P 500
Index with investments in the stocks of acquisition targets. To track the S&P
500 Index, the Fund invests in derivatives or common stocks of S&P 500
companies. To seek returns in excess of the S&P 500 Index, the Fund buys shares
of companies that are acquisition targets based on specific events that trigger
a merger arbitrage opportunity. The goal is to capture the difference between
the target's post-bid share price and the target's expected fixed payout. These
investments are made based on our own proprietary quantitative models. These
shares are sold when the acquisition is consummated or the transaction is
abandoned.
Cumulative Total Returns
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Periods ended
June 30, 1999 Since inception
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Quantitative Equity Fund(1) 13.90%
(inception 3/31/99)
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S&P 500 Index(2) 7.06%
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Lipper Growth & Income Average(3) 9.03%
The Fund has had an exciting initial period, marking its first quarter by
outperforming the S&P 500 Index by a margin of 6.84%. The Fund's strong returns
relative to the Index were primarily fueled by the numerous deals closed in the
second calendar quarter of 1999. The following is a list of merger deals that
the Fund invested in during the second quarter of 1999, all of which were
completed successfully.
Acquired Acquirer
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XYLAN Alcatel
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U.S. Filter Vivendi
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CMP Media United News & Media
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VLSI Technology, Inc. Royal Phillips Electronics
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Morton International Rohm & Haas
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Sunstrand United Apparel Group
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Fore Systems GEC PLC
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Platinum Technology Computer Associates
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AeroQuip-Vickers Eaton Corporation
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Nine West Jones Apparel
The Fund has established strict criteria in its disciplined merger arbitrage
investment approach. For example, the Fund:
o only purchases the stock of an announced target company, referred to as
"acquired" in the table above
o invests only in merger deals that are generally made with financing of at
least 50% cash
o usually invests in acquisition targets with a minimum market capitalization
of $500 million, although shares of smaller companies may be purchased.
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(1) Past performance is not indicative of future results. Investment return and
principal value will fluctuate so that an investor's shares, when redeemed,
may be worth more or less than their original cost. The 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) The S&P 500 is an index of common stocks in industry, transportation, and
financial and public utility companies. This index is unmanaged, and
investments cannot be made in an index.
(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
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Quantitative Equity Fund
Letter to Shareholders
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Diversification of Portfolio Investments
By Sectors as of June 30, 1999
(percentages are based on net assets)
In the printed version there appears a pie chart with the following
percentages depicted:
Other 11.7%
U.S. Treasury Bills 56.2%
Short-term Instrument 6.1%
Stocks 26.0%
MANAGER OUTLOOK
U.S. economic growth is showing no signs of slowing and labor markets are still
extremely tight. Thus, the pick-up in the rest of the world, as the global
economic outlook improves, raises the risks of inflation pressures here at home.
To guard against those risks, the Federal Reserve Board raised the targeted fed
funds rate by 0.25% to 5% at their meeting on June 30th. Although the Fed
declared a bias toward a neutral stance, we expect continued strong growth and
some pick-up in inflation to prompt a modest degree of additional Fed tightening
and some further backup in Treasury yields going forward. This backdrop might
temper the equity markets' enthusiasm a bit, but a serious correction is, in our
opinion, unlikely unless the economy really overheats, provoking aggressive Fed
tightening and imperiling the economic expansion the U.S. has enjoyed for more
than eight years. Looking ahead, we believe the environment for mergers remains
strong.
We appreciate your ongoing support of the Quantitative Equity Fund and look
forward to serving your investment needs in the years ahead.
/s/ Manish Keshive
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Manish Keshive
Portfolio Manager of the
Quantitative Equity Fund
June 30, 1999
4
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Quantitative Equity Fund
Performance Comparison
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In the printed version there appears a line graph with the following plot
points decpicted:
Quantitative Equity Fund $11,390
S&P 500 Index $10,706
Quantitative S&P 500
Equity Fund Index
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March 1999 $10,000 $10,000
June 1999 $11,390 $10,706
Comparison of Change in Value of a $10,000 Investment in the Quantitative Equity
Fund since March 31, 1999.
Total Return for the Period
March 31, 1999(1) through
June 30, 1999
Since Inception
13.90%
(1) The Fund's inception date.
Investment return and principal value may fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
Past performance is not indicative of future performance. Performance figures
assume the reinvestment of dividends and capital gain distributions.
5
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Quantitative Equity Fund
Schedule of Investments June 30, 1999 (unaudited)
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Shares Security Value
- ------ -------- -----
COMMON STOCKS - 26.0%
Environmental Control - 6.8%
1,100 Browning-Ferris Industries, Inc. ............................ $ 47,300
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Foods - 2.5%
1,000 Richfood Holdings, Inc. ...................................... 17,625
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Machinery - 6.2%
900 Case Corp. .................................................. 43,312
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Metals - 5.6%
2,000 Wyman/Gordon Corp. .......................................... 38,625
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Transportation - 2.8%
500 Avondale Industries, Inc. ................................... 19,500
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Wholesale Distributor - 2.1%
400 VWR Scientific Products Corp. ............................... 14,675
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Total Common Stocks
(Cost $178,167) ................................................... 181,037
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SHORT-TERM
INSTRUMENT - 6.1%
42,441 Institutional Cash Management Fund .......................... 42,441
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Total Short-Term Instrument
(Cost $42,441) .................................................... 42,441
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Principal
Amount Security Value
- --------- -------- -----
U.S. TREASURY BILLS - 56.2%
$ 25,000 4.45%, 8/19/99 ............................................ $ 24,855
20,000 4.46%, 8/19/99 ............................................ 19,880
350,000 4.61%, 9/16/99 ............................................ 346,587
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Total U.S. Treasury Bills
(Amortized Cost $391,289) ......................................... 391,322
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Total Investments
(Cost $611,897) ............................................ 88.3% 614,800
Other Assets in Excess of Liabilities ........................ 11.7% 81,786
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Net Assets ................................................... 100.0% $696,586
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See Notes to Financial Statements.
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Quantitative Equity Fund
Statement of Assets and Liabilities June 30, 1999 (unaudited)
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Assets
Investment, at Value (Cost of Investments of $611,897) ......... $614,800
Receivable for Fund Shares Sold ................................ 2,142
Receivable for Securities Sold ................................. 30,000
Receivable for Variation Margin ................................ 12,500
Dividends and Interest Receivable .............................. 631
Due from Bankers Trust ......................................... 6,915
Prepaid Expenses and Other ..................................... 68,982
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Total Assets ........................................................ 735,970
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Liabilities
Payable for Securities Purchased ............................... 26,303
Accrued Expenses and Other ..................................... 13,081
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Total Liabilities ................................................... 39,384
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Net Assets .......................................................... $696,586
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Shares Outstanding ($0.001 par value per share, unlimited number
of shares of beneficial interest authorized) ................... 61,168
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Net Asset Value, Offering and Redemption Price Per Share
(net assets divided by shares outstanding) ..................... $ 11.39
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Composition of Net Assets
Paid-in Capital ................................................ 635,198
Undistributed Net Investment Income ............................ 1,221
Accumulated Net Realized Gain from Investment Transactions and
Futures Contracts ........................................... 31,713
Net Unrealized Appreciation on Investments and
Futures Contracts ........................................... 28,454
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Net Assets .......................................................... $696,586
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Statement of Operations (unaudited)
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For the Period
March 31, 1999(1)
through
June 30, 1999
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Investment Income
Dividends ..................................................... $ 1,593
Income ........................................................ 636
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Total Investment Income .......................................... 2,229
Expenses
Professional Fees ............................................. 8,322
Registration Fees ............................................. 7,241
Shareholder Report Expenses ................................... 4,345
Trustees Fees ................................................. 1,203
Administration and Service Fees ............................... 616
Advisory Fees ................................................. 560
Miscellaneous Expenses ........................................ 1,222
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Total Expenses ................................................ 23,509
Less Expenses Reimbursed and Fees Waived by Bankers Trust ..... (22,501)
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Net Expenses .................................................. 1,008
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Net Investment Income ............................................ 1,221
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Realized and Unrealized Gain on Investments and Futures Contracts
Net Realized Gain from Investment Transactions and
Futures Contracts .......................................... 31,713
Net Change in Unrealized Appreciation/Depreciation on
Investments and Futures Contracts .......................... 28,454
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Net Realized and Unrealized Gain on Investments and
Futures Contracts .......................................... 60,167
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Net Increase in Net Assets from Operations ....................... $ 61,388
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(1) Commencement of operations
See Notes to Financial Statements.
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Quantitative Equity Fund
Statement of Changes in Net Assets (unaudited)
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For the Period
March 31, 1999(1)
through
June 30, 1999
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Increase (Decrease) in Net Assets from:
Operations
Net Investment Income ...................................... $ 1,221
Net Realized Gain from Investments and Futures Contracts ... 31,713
Net Change in Unrealized Appreciation/Depreciation on
Investments and Futures Contracts ....................... 28,454
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Net Increase in Net Assets Resulting from Operations ....... 61,388
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Capital Transactions
Proceeds from Sale of Shares ............................... 635,198
Cost of Shares Redeemed .................................... --
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Net Increase in Net Assets from Capital Transactions .......... 635,198
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Total Increase in Net Assets .................................. 696,586
Net Assets
Beginning of Period ........................................... --
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End of Period (including undistributed net investment
income of $1,221) .......................................... $696,586
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(1) Commencement of operations
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Financial Highlights (unaudited)
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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 Period
March 31, 1999(1)
through
June 30, 1999
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Per Share Operating Performance:
Net Asset Value, Beginning of Period ............................. $10.00
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Income from Investment Operations
Net Investment Income ......................................... 0.03(2)
Net Realized and Unrealized Gain on Investment Transactions
and Futures Contracts ....................................... 1.36
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Total from Investment Operations ................................. 1.39
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Net Asset Value, End of Period ................................... $11.39
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Total Investment Return .......................................... 13.90%
Supplemental Data and Ratios:
Net Assets, End of Period (000s omitted) ...................... $ 697
Ratios to Average Net Assets:
Net Investment Income ...................................... 1.05%(3)
Net Expenses ............................................... 0.90%(3)
Decrease Reflected in Above Expense Ratios Due to
Expenses Reimbursed and/or Fees Waived by Bankers Trust .. 19.27%(3)
Portfolio Turnover Rate ....................................... 256%
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(1) Commencement of operations.
(2) Calculated using average shares for the period.
(3) Annualized.
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Quantitative Equity Fund
Notes to Financial Statements (unaudited)
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Note 1 -- Organization and Significant Accounting Policies
A. Organization
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 February 28, 1992, as a business trust under the laws of
the Commonwealth of Massachusetts. The Quantitative 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 March 31, 1999.
B. Security Valuation
The Fund'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. Futures Contracts
The Portfolio may enter into financial futures contracts, which are contracts to
buy a standard quantity of securities at a specified price on a future date. The
Portfolio is required to deposit either in cash or securities 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. The Portfolio's
investment in the financial futures contracts is designed to closely replicate
the benchmark index used 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.
D. Security Transactions and Interest Income
Security transactions are accounted for on a trade date basis. Dividend income
is recorded on the ex-dividend date. Interest income is recorded on the accrual
basis and includes amortization of premium and discount on investments. Realized
gains and losses from securities transactions are recorded on the identified
cost basis.
E. Distributions
It is the Fund's policy to declare and distribute dividends annually 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, are made annually
to the extent they exceed capital loss carryforwards.
F. Federal Income Taxes
It is the Fund's policy to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute all of its
taxable income to shareholders. Therefore, no federal income tax provision is
required on a pro rata basis.
The Fund may periodically make reclassifications among certain of its capital
accounts as a result of the 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.
G. Other
The Trust accounts separately for the assets, liabilities, and operations of the
Fund. Expenses directly attributable to the Fund are charged to that Fund, while
expenses which are attributable to all of the Trust's funds are allocated among
them on a pro rata 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 .55% of
the Fund's average daily net assets.
The Fund has entered into an Advisory Agreement in which the Fund pays Bankers
Trust an advisory fee computed daily and paid monthly at an annual rate of .50%
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 .90% of
the average daily net assets of the Fund.
The Fund may invest in the BT Institutional Cash Management Fund (the "Cash
Management Fund"), an open-end management investment company managed by Bankers
Trust Company (the "Company"). The "Cash Management Fund" is offered as a cash
management option to the Fund and other accounts managed by the Company.
Distributions from the "Cash Management Fund" to the Fund for the period ended
June 30, 1999, amounted to $1,149 and are included in dividend income.
ICC Distributors, Inc., a member of the Forum Group of Companies, provides
distribution services to the Fund.
9
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Quantitative Equity Fund
Notes to Financial Statements (unaudited)
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The Quantitative Equity Fund is 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. Amounts borrowed under the credit facilities will bear
interest at a rate per annum equal to the Federal Funds Rate plus .50%. No
amounts were drawn down or outstanding under the credit facilities as of and for
the period ended June 30, 1999.
Bankers Trust Company is a wholly owned subsidiary of Bankers Trust Corporation.
In November 1998 Bankers Trust Corporation ("BT Corp.") and Deutsche Bank AG
("Deutsche Bank") entered into an Agreement and Plan of Merger which was
consummated on June 4, 1999. As a result of the transaction, BT Corp. became a
wholly-owned subsidiary of Deutsche Bank.
Note 3 -- Shares of Beneficial Interest
At June 30, 1999, there were an unlimited number of shares of beneficial
interest authorized. Transactions in shares of beneficial interest were as
follows:
For the
period March 31, 1999(1)
through June 30, 1999(2)
------------------------
Shares Amount
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Sold ................... 61,168 $635,198
Reinvested ............. -- --
Redeemed ............... -- --
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Net Increase ........... 61,168 $635,198
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(1) Commencement of operations.
(2) Unaudited.
Note 4 -- Purchases and Sales of Investment Securities
The aggregate cost of purchases and proceeds from sales of investments, other
than short-term obligations, for the period ended June 30, 1999 were $796,233
and $650,000, respectively. For federal income tax purposes, the tax basis of
investments held at June 30, 1999 was $611,897. The aggregate gross unrealized
appreciation was $3,355, and the aggregate gross unrealized depreciation for all
investments was $452 as of June 30, 1999.
Note 5 -- Futures Contracts
A summary of obligations under these financial instruments at June 30, 1999 is
as follows:
Market Unrealized
Type of Future Expiration Contracts Position Value Appreciation
- -------------- ---------- --------- -------- ------ ------------
S&P 500 Index
Futures Sept. 1999 500 Long $690,850 $25,551
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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 Auditors
ERNST & YOUNG LLP
2001 Market Street
Philadelphia, PA 19103
Counsel
WILLKIE FARR & GALLAGHER
787 7th Avenue
New York, NY 10019
[LOGO]
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.
Quantitative Equity Fund CUSIP #55922652
BT Investment Funds 812SA (6/99)
Distributed by:
ICC Distributors, Inc.
Two Portland Square
Portland, ME 04101