MARCH 31, 1999
[LOGO] BT Mutual Funds
SmallCap Fund
Semi-Annual Report
Trust: BT Investment funds
Investment Advisor: Bankers Trust company
<PAGE>
- --------------------------------------------------------------------------------
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
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
-------------------
The Fund is not insured by the FDIC and is not a deposit,
obligation of or guaranteed byBankers Trust Company. The Fund is
subject to investment risks, including possible loss of principal
amount invested.
-------------------
2
<PAGE>
- --------------------------------------------------------------------------------
Small Cap Fund
Letter to Shareholders
- --------------------------------------------------------------------------------
We are pleased to present you with this semi-annual report for the BT Investment
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
Overall, the six months ended March 31, 1999 witnessed a continuation of the
significant volatility experienced by small capitalization growth stocks 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. At the same time,
it is well worth noting that small cap growth stocks actually outperformed
midcap stocks for the semi-annual period.
The fourth calendar quarter of 1998 began with a continuation of the summer's
sharp sell off in small cap growth stocks as well as in the broader equity
markets. This was followed by an even more pronounced recovery quickly
thereafter.
The rally was furthered by several factors:
o Two quickly successive and surprise interest rate cuts of 25 basis points
each by the Federal Reserve Board on October 15th and then again on November
17th, following the first of the series of cuts on September 29th
o Overseas developments, including interest rate cuts in a number of foreign
countries, International Monetary Fund help for Brazil, and the announcement
of a Japanese banking reform bill
o Receding concerns of a global credit crunch and recession
o Regained investor confidence as reported earnings results for the third
calendar quarter were relatively positive
o Sharp improvement in the Internet-related stocks, as these companies
continued to show strong growth, as an Internet Initial Public Offering
(IPO) market had some success, and as Internet-related commerce emerged as
a real factor during the holiday season
o Continuation of a relatively strong overall U.S. economy with low inflation
and healthy consumer spending.
The small cap market rally that began in mid-October continued into the first
calendar quarter of 1999, only to become subject to fears and uncertainty again
in February. As the quarter began, the positive market environment for small
caps was buoyed by strength in economic growth, consumer spending, and fourth
quarter earnings reports as well as by low inflation and interest rates. Many
companies, in the technology arena especially, expressed upbeat outlooks.
Ironically, this very positive environment raised concerns that, at best, the
Federal Reserve Board was on hold and, perhaps, may act to raise interest rates
at the first sign of inflation.
March witnessed a rebound in the small cap equity market. After the February
sell-off, subsequent economic reports pointed to a continuation of economic
growth with little or no evidence of inflation. Such data was interpreted as
neutral to positive for interest rates, propelling the equity markets higher.
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.
Throughout the semi-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
March 31, 1999, still at multi-decade lows.
INVESTMENT REVIEW
The Fund significantly outperformed its category average and its benchmarks for
the six month period, particularly well worth noting given the extremely high
volatility in the small cap equity market during these months. Specific stock
selection and, to an even greater degree, sector positioning bolstered Fund
performance.
For example, in the fourth quarter of 1998, the Fund was overweight 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. Materials & processing was again one of the poorest
performing sectors as was consumer staples, both of which the Fund was
underweight.
- --------------------------------------------------------------------------------
Ten Largest Stock Holdings
- --------------------------------------------------------------------------------
Priority Healthcare Corp - Class B. Abacus Direct Corp.
................................................................................
Safeguard Scientifics, Inc. Exodus Communications, Inc.
................................................................................
Onyx Software Corp. Jabil Circuit, Inc.
................................................................................
Carrier Access Corp. Pacific Sunwear of California
................................................................................
CSG Systems International, Inc. Net.Bank, Inc.
- --------------------------------------------------------------------------------
MANAGER OUTLOOK
Although we expect 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 superior, and relative valuations attractive. In
particular, the companies in the Fund's portfolio are, overall, experiencing
strong fundamental growth in revenues and earnings and are expressing upbeat
outlooks for the remainder of 1999.
3
<PAGE>
- --------------------------------------------------------------------------------
Small Cap Fund
Letter to Shareholders
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Periods ended March 31, 1999 Cumulative Total Returns Average Annual Total Returns
- -----------------------------------------------------------------------------------------------------------------------------------
Past 6 Past 1 Past 3 Past 5 Since Past 1 Past 3 Past 5 Since
months year years years inception year years years inception
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Small Cap Fund(1)
(inception 10/21/93) 34.80% (1.37)% 24.82% 153.25% 166.16% (1.37)% 7.67% 20.42% 19.72%
- -----------------------------------------------------------------------------------------------------------------------------------
Russell 2000 Index(2) 10.00% (16.26)% 25.00% 70.22% 65.70% (16.26)% 7.72% 11.22% 9.77%
- -----------------------------------------------------------------------------------------------------------------------------------
Russell 2000 Growth Index(2) 21.56% (11.04)% 18.28% 66.70% 59.50% (11.04)% 5.76% 10.76% 9.01%
- -----------------------------------------------------------------------------------------------------------------------------------
Lipper Small Cap
Average(3) 12.53% (15.48)% 27.20% 80.00% 76.11% (15.48)% 8.03% 12.11% 10.72%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Over the longer term, it has been shown that investors will pay for reasonably
priced earnings growth. It is important to remember that investors should take a
long-term view when investing in this segment of the market, as returns can be
volatile in the short term.
Given the recent high volatility in the stock market, it is also important to
keep in mind that at Bankers Trust we remain disciplined in our process, and we
continue to:
o focus on companies that offer compelling valuations relative to their
growth rates
o focus on companies that have strong, consistent earnings and revenue growth
o use extensive fundamental research--as well as our thematic approach and
screening process--to identify attractive investment opportunities in
unrecognized growth companies and sectors
o strictly adhere to our sell discipline to help mitigate risk, and
o use the volatility of the marketplace to our investors' advantage by
initiating or adding to positions on weakness.
We will continue to monitor economic conditions and their effect on financial
markets as we seek long-term capital growth.
/s/ Timothy Woods and Mary P. Dugan
-----------------------------------
Portfolio Managers of the
Small Cap Portfolio
March 31, 1999
- --------------------------------------------------------------------------------
Diversification of Portfolio Investments
- --------------------------------------------------------------------------------
By Theme as of March 31, 1999
(percentages are based on market value)
Our Strengthening Financial Structure 5%
New Health Paradigm 7%
New Consumer 5%
America's Educational Crisis 3%
Managing the Information Age 9%
Life on the Net 14%
Energizing the Globe 4%
Client Server Computing 9%
Flourishing in the Managed Care Environment 3%
The Ubiquitous Semiconductor 10%
Other + 17%
Telecommunications 7%
Cash 7%
+ Includes themes with weightings of less than 3%.
(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) 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 comprised of securities in the Russell 2000 Index with a
greater than average growth orientation. 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.
4
<PAGE>
- --------------------------------------------------------------------------------
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 Periods
Ended March 31, 19993
One Year Five Year Since 10/21/93(1)
- -------- --------- -----------------
(1.37)% 20.42%(2) 19.72%(2)
(1) The Fund's inception date.
(2) Annualized.
(3) Unaudited
Investment return and principal value may fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
- --------------------------------------------------------------------------------
[GRAPHIC]
In the printed version of the document, a line graph appears which depicts the
following plot points:
Small Cap Fund - $26,616 Russell 2000 Index - $16,570
------------------------ ----------------------------
Oct-93 10000 10000
Mar-94 10375 9735
Sep-94 11451 10004
Mar-95 14107 10272
Sep-95 18263 12345
Mar-96 21049 13256
Sep-96 23074 13967
Mar-97 17517 13933
Sep-97 27217 18602
Mar-98 26987 19788
Sep-98 19745 15063
Mar-99 26616 16570
Past performance is not indicative of future performance. Performance figures
assume the reinvestment of dividends and capital gain distributions.
5
<PAGE>
- --------------------------------------------------------------------------------
Small Cap Fund
Statement of Assets and Liabilities March 31, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets
Investment in Small Cap Portfolio, at Value ............................. $ 209,424,262
Receivable for Shares of Beneficial Interest Subscribed ................. 412,133
Prepaid Expenses and Other .............................................. 18,450
-------------
Total Assets ............................................................... 209,854,845
-------------
Liabilities
Due to Bankers Trust .................................................... 105,681
Payable for Shares of Beneficial Interest Redeemed ...................... 940,241
Accrued Expenses and Other .............................................. 14,541
-------------
Total Liabilities .......................................................... 1,060,463
-------------
Net Assets ................................................................. $ 208,794,382
=============
Composition of Net Assets
Paid-in Capital ......................................................... $ 155,607,589
Expenses in Excess of Income ............................................ (808,169)
Net Realized Loss from Investment Transactions .......................... (4,497,234)
Net Unrealized Appreciation on Investment ............................... 58,492,196
-------------
Net Assets ................................................................. $ 208,794,382
=============
Net Asset Value, Offering and Redemption Price Per Share
(net assets divided by shares outstanding) .............................. $ 20.12
=============
Shares Outstanding ($0.001 par value per share, unlimited number of shares
of beneficial interest authorized) ...................................... 10,375,623
=============
</TABLE>
- --------------------------------------------------------------------------------
Statement of Operations For the six months ended March 31, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment Income
Expenses in Excess of Income Allocated from Small Cap Portfolio, net .... $ (165,716)
-------------
Expenses
Administration and Services Fees ........................................ 642,453
Registration Fees ....................................................... 12,543
Printing and Shareholder Reports ........................................ 8,787
Professional Fees ....................................................... 14,500
Trustees Fees ........................................................... 2,259
Miscellaneous ........................................................... 3,157
-------------
Total Expenses .......................................................... 683,699
Less Expenses absorbed by Bankers Trust ................................. (41,246)
-------------
Net Expenses ......................................................... 642,453
-------------
Expenses in excess of income ............................................... (808,169)
-------------
Realized and Unrealized Gain on Investment
Net Realized Gain from Investment Transactions .......................... 11,022,283
Net Change in Unrealized Appreciation/Depreciation on Investment ........ 49,756,023
-------------
Net Realized and Unrealized Gain on Investment ............................. 60,778,306
-------------
Net Increase in Net Assets from Operations ................................. $ 59,970,137
=============
</TABLE>
See Notes to Financial Statements.
6
<PAGE>
- --------------------------------------------------------------------------------
Small Cap Fund
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the six For the
months ended year ended
March 31, 1999(1) September 30, 1998
------------------ -------------------
<S> <C> <C>
Increase (Decrease) in Net Assets from:
Operations
Expenses in Excess of Income ....................................... $ (808,169) $ (2,042,216)
Net Realized Gain from Investment Transactions ..................... 11,022,283 3,536,499
Net Change in Unrealized Appreciation/Depreciation on Investment ... 49,756,023 (73,838,071)
------------- -------------
Net Increase (Decrease) in Net Assets from Operations ................. 59,970,137 (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 ...................................... 76,584,593 299,805,325
Dividend Reinvestments ............................................. 422,174 17,676,714
Cost of Shares Redeemed ............................................ (99,899,491) (333,578,059)
------------- -------------
Net Decrease from Capital Transactions in Shares of Beneficial Interest (22,892,724) (16,096,020)
------------- -------------
Total Increase (Decrease) in Net Assets ............................... 36,484,323 (114,012,149)
Net Assets
Beginning of Period ................................................... 172,310,059 286,322,208
------------- -------------
End of Period ......................................................... $ 208,794,382 $ 172,310,059
============= =============
</TABLE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
Contained below are selected data for a share outstanding, total investment
return, ratios to average net assets and other supplemental data for the periods
indicated for the Small Cap Fund.
<TABLE>
<CAPTION>
For the years ended
For the September 30,
six months ended --------------------------------------------------
March 31, 1999(1) 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 ................... (0.08) (0.18) (0.14) (0.12) (0.04)
Net Realized and Unrealized Gain (Loss)
on Investment ............................... 5.30 (6.24) 3.58 4.65 6.94
--------- --------- --------- --------- ---------
Total Income/(Expenses in Excess of Income)
from Investment Operations ..................... 5.22 (6.42) 3.44 4.53 6.90
--------- --------- --------- --------- ---------
Distributions to Shareholders
Net Realized Gain from Investment Transactions . (0.06) (1.04) (1.42) (1.37) --
In Excess of Net Realized Gains ................ -- (1.26) -- -- --
--------- --------- --------- --------- ---------
Total Distributions ............................... (0.06) (2.30) (1.42) (1.37) --
--------- --------- --------- --------- ---------
Net Asset Value, End of Period .................... $ 20.12 $ 14.96 $ 23.68 $ 21.66 $ 18.50
========= ========= ========= ========= =========
Total Investment Return ........................... 34.80% (28.38)% 17.90% 26.41% 59.48%
Supplemental Data and Ratios:
Net Assets, End of Period (000s omitted) ....... $ 208,794 $ 172,310 $ 286,322 $ 242,236 $ 122,935
Ratios to Average Net Assets:
Expenses in Excess of Income ................ (0.82)%(2) (0.87)% (0.89)% (0.70)% (0.46)%
Expenses, Including Expenses of the
Small Cap Portfolio ....................... 1.25%(2) 1.25% 1.25% 1.25% 1.25%
Decrease Reflected in Above Expense Ratio Due
to Absorption of Expenses by Bankers Trust 0.21%(2) 0.19% 0.03% 0.22% 0.34%
</TABLE>
- -----------------
(1) Unaudited
(2) Annualized
See Notes to Financial Statements.
7
<PAGE>
- --------------------------------------------------------------------------------
Small Cap Fund
Notes to Financial Statements (unaudited)
- --------------------------------------------------------------------------------
Note 1--Organization and Significant Accounting Policies
A. Organization
BT Investment Funds (the "Trust") is registered under the Investment Company Act
of 1940 (the "Act"), as amended, as an open-end management investment company.
The Trust was organized on July 21, 1986, as a business trust under the laws of
the Commonwealth of Massachusetts. The Small Cap 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 October 21, 1993. The Fund invests
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 Fund seeks to achieve its investment objective by investing all of its
investable assets in the Portfolio. The value of the investment in the Portfolio
reflects the Fund's proportionate interest in the net assets of the Portfolio.
At March 31, 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. The Fund has
deferred post October capital losses of $14,786,627 relating to fiscal year end
September 30, 1998 and will be recognized in the period ending September 30,
1999.
F. 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
the Funds. Investment transactions are accounted for on the trade date basis.
Realized gains and losses are determined on the identified cost basis.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts in the financial statements. Actual results could
differ from those estimates.
Note 2--Fees and Transactions with Affiliates
The Fund has entered into an Administration and Services Agreement with Bankers
Trust Company ("Bankers Trust"). Under this Agreement, Bankers Trust provides
administrative, custody, transfer agency and shareholder services to the Fund in
return for a fee computed daily and paid monthly at an annual rate of .65% of
the Fund's average daily net assets.
Bankers Trust has voluntarily undertaken to waive its fees and reimburse
expenses of the Fund, to the extent necessary, to limit all expenses to .65% of
the average daily net assets of the Fund, excluding expenses of the Portfolio,
and 1.25% of the average daily net assets of the Fund, including expenses of the
Portfolio.
ICC Distributors, Inc., a member of the Forum Group of Companies, provides
distribution services to the Fund.
The Fund is a participant with other affiliated entities in a revolving credit
facility and a discretionary demand line of credit facility, (collectively the
"credit facilities") in the amounts of $50,000,000 and $100,000,000,
respectively. A commitment fee of .07% per annum on the average daily amount of
the available commitment is payable on a calendar quarter basis, and apportioned
equally among all participants. Amounts borrowed under the credit facilities
will bear interest at a rate per annum equal to the Federal Funds Rate plus
.45%. No amounts were drawn down or outstanding under the credit facilities as
of and for the six month period 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
8
<PAGE>
- --------------------------------------------------------------------------------
Small Cap Fund
Notes to Financial Statements (unaudited)
- --------------------------------------------------------------------------------
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--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 six months ended For the year ended
March 31, 1999 (unaudited) September 30, 1998
-------------------------- --------------------------
Shares Amount Shares Amount
------ ------ ------ ------
Sold 4,505,245 $ 76,584,593 15,646,669 $299,805,325
Reinvested 24,817 422,174 1,021,185 17,676,714
Redeemed (5,668,979) (99,899,491) (17,243,267) (333,578,059)
------------- ------------- ------------- -------------
Net Decrease (1,138,917) $(22,892,724) (575,413) $(16,096,020)
============= ============= ============= =============
9
<PAGE>
- --------------------------------------------------------------------------------
Small Cap Portfolio
Schedule of Portfolio Investments March 31, 1999 (unaudited)
- --------------------------------------------------------------------------------
Shares Description Value
------ ----------- -----
Common Stocks - 93.8%
America's Changing Leisure Time - 2.4%
74,200 Cinar Corp. -Class B Sub Mg(1) ................. $1,706,600
66,900 Hollywood Entertainment Corp.(1) ............... 1,246,012
76,800 O'Charleys, Inc.(1) ............................ 1,041,600
35,800 P.F. Changs China Bistro, Inc.(1) .............. 1,091,900
----------
5,086,112
----------
America's Educational Crisis - 3.1%
48,800 Advantage Learning Systems, Inc.(1) ............ 1,515,850
23,400 Career Education Corp.(1) ...................... 810,225
55,300 ITT Educational Services, Inc.(1) .............. 2,077,206
108,000 School Specialty, Inc.(1) ...................... 2,112,750
----------
6,516,031
----------
America's Industrial Renaissance - 2.0%
75,400 CSK Auto Corp.(1) .............................. 2,257,287
65,800 Skywest, Inc. .................................. 1,899,975
----------
4,157,262
----------
Client-Server Computing - 8.8%
45,400 Concur Technologies, Inc.(1) ................... 2,048,675
4,200 Critical Path, Inc.(1) ......................... 323,400
47,400 Intraware, Inc.(1) ............................. 1,898,962
63,000 Mercury Interactive(1) ......................... 2,244,375
69,700 Microstrategy, Inc.(1) ......................... 1,341,725
33,600 New Era of Networks, Inc.(1) ................... 2,276,400
60,100 Safeguard Scientific, Inc.(1) .................. 4,075,531
52,600 Verio, Inc.(1) ................................. 2,426,175
74,700 Xircom, Inc.(1) ................................ 1,876,837
----------
18,512,080
----------
Consolidating America - 1.8%
54,200 Heftel Broadcasting Corp. - Class A(1) ......... 2,350,925
88,500 Integrated Electrical Services(1) .............. 1,416,000
----------
3,766,925
----------
Energizing The Globe - 4.1%
65,900 Calpine Corp.(1) ............................... 2,401,231
111,000 Noble Drilling Corp.(1) ........................ 1,921,688
113,300 Sante Fe International, Inc.(1) ................ 2,117,294
54,700 Smith International, Inc. ...................... 2,188,000
----------
8,628,213
----------
Flourishing In The Managed
Care Environment - 2.9%
94,900 Annuity and Life Re (Holdings) ................. 2,170,837
58,200 Pediatrix Medical Group, Inc.(1) ............... 1,636,875
66,400 Trigon Healthcare, Inc.(1) ..................... 2,274,200
----------
6,081,912
----------
Interactive Media - 1.6%
99,200 ANTEC Corp.(1) ................................. 2,132,800
113,400 CBT Group PLC-ADR(1) ........................... 1,297,012
----------
3,429,812
----------
Life On The Net - 13.9%
25,800 Allaire Corp.(1) ............................... 1,754,400
9,600 Autoweb.com, Inc.(1) ........................... 342,000
15,800 Broadcast.com, Inc.(1) ......................... 1,867,362
2,100 Cheap Tickets, Inc.1 ........................... 70,612
22,800 Exodus Communications, Inc.(1) ................. 3,066,600
5,600 Flashnet Communications, Inc.(1) ............... 230,300
18,400 Go2net, Inc.(1) ................................ 2,440,300
Shares Description Value
------ ----------- -----
30,800 Infoseek Corp.(1) .............................. $2,279,200
23,800 Infospace.com, Inc.(1) ......................... 2,109,275
3,300 Miningco.com(1) ................................ 295,350
42,800 Net.Bank, Inc.(1) .............................. 2,910,400
2,100 Pcorder.com, Inc.(1) ........................... 118,912
1,700 Priceline.com, Inc.(1) ......................... 140,887
26,300 Prodigy Communications Corp.(1) ................ 1,009,262
19,600 Rowecom, Inc.(1) ............................... 855,050
98,600 Security Dynamics Technologies, Inc.(1) ........ 1,836,425
59,600 USweb Corp.(1) ................................. 2,458,500
21,800 Verticalnet, Inc.(1) ........................... 2,264,475
15,100 WebTrends Corp.(1) ............................. 734,237
31,400 Xoom.com, Inc.(1) .............................. 2,105,762
5,900 Ziff-Davis, Inc - ZD Net, Inc.(1) .............. 212,400
----------
29,101,709
----------
Life Sciences Revolution - 1.2%
41,000 Medimmune, Inc.(1) ............................. 2,426,687
----------
Managing The Information Age - 9.5%
39,000 Abacus Direct Corp.(1) ......................... 3,198,000
35,000 Legato Systems, Inc.(1) ........................ 1,806,875
67,000 Modem Media Poppe Tyson, Inc.(1) ............... 2,872,625
1,900 Multex.com, Inc.(1) ............................ 118,750
95,600 Onyx Software Corp.(1) ......................... 3,740,350
46,300 Pegasus Systems, Inc.(1) ....................... 1,846,212
57,500 Transactions Systems Architects, Inc. -
Class A(1) ..................................... 2,070,000
34,300 VERITAS Software Corp.(1) ...................... 2,769,725
71,600 Whittman-Hart, Inc.(1) ......................... 1,539,400
----------
19,961,937
----------
Move To Outsourcing - 2.3%
50,300 G & K Services, Inc. - Class A(1) .............. 2,323,231
32,500 Lason, Inc.(1) ................................. 1,828,125
23,200 Metzler Group, Inc.(1) ......................... 727,900
----------
4,879,256
----------
New Consumer - 5.1%
44,500 Ann Taylor Stores Corp.(1) ..................... 1,966,344
53,100 Fossil, Inc.(1) ................................ 1,583,044
84,200 Pacific Sunwear of California(1) ............... 2,925,950
113,200 Restoration Hardware, Inc.(1) .................. 2,490,400
84,050 T-HQ, Inc.(1) .................................. 1,712,519
----------
10,678,257
----------
New Health Care Paradigm - 6.6%
69,000 AmeriSource Health Corp. - Class A(1) .......... 2,358,937
67,800 Medicis Pharmaceutical - Class A(1) ............ 2,034,000
54,600 Medquist, Inc.(1) .............................. 1,638,000
22,500 MiniMed, Inc.(1) ............................... 2,286,562
95,300 Priority Healthcare Corp. - Class B(1) ......... 4,312,325
11,400 VISX, Inc.(1) .................................. 1,226,212
----------
13,856,036
----------
Our Strengthening Financial Structure - 4.9%
26,600 Centura Banks, Inc. ............................ 1,547,788
80,366 Legg Mason, Inc. ............................... 2,707,330
39,500 Metris Companies, Inc. ......................... 1,594,813
66,200 Mutual Risk Management Ltd. .................... 2,532,150
93,500 Philadelphia Consolidated
Holding Co.(1) ............................... 1,881,688
----------
10,263,769
----------
See Notes to Financial Statements.
10
<PAGE>
- --------------------------------------------------------------------------------
Small Cap Portfolio
Schedule of Portfolio Investments March 31, 1999 (unaudited)
- --------------------------------------------------------------------------------
Shares Description Value
------ ----------- -----
Return To Home Ownership - 2.3%
52,900 99 Cents Only Stores(1) ...................... $2,244,944
53,900 Linens 'N Things, Inc.(1) .................... 2,445,713
------------
4,690,657
------------
Special Situations - 1.9%
76,200 Rayovac Corp.(1) ............................. 2,100,263
85,500 Universal Foods Corp.(1) ..................... 1,763,438
------------
3,863,701
------------
Stores of Value - 1.8%
89,400 BJ's Wholesale Club, Inc.(1) ................. 2,363,513
104,100 General Nutrition Companies(1) ............... 1,457,400
------------
3,820,913
------------
Telecommunications - 7.1%
98,200 Allegiance Telecom, Inc.(1) .................. 2,455,000
43,600 Carrier Access Corp.(1) ...................... 3,370,825
49,900 COM21, Inc.(1) ............................... 1,309,875
82,000 CSG Systems International, Inc.(1) ........... 3,233,875
66,600 RSL Communications, Ltd. - Class A(1) ........ 2,393,438
55,100 WinStar Communications, Inc.(1) .............. 2,002,541
------------
14,765,554
------------
The Ubiquitous Semiconductor - 10.5%
9,500 E-Tek Dynamics, Inc.(1) ...................... 340,813
74,800 Jabil Circuit, Inc.(1) ....................... 3,029,400
40,200 Lattice Semiconductor Corp.(1) ............... 1,831,613
49,900 Micrel, Inc.(1) .............................. 2,498,119
41,900 Novellus Systems, Inc.(1) .................... 2,309,738
80,300 Photronics, Inc.(1) .......................... 1,495,588
Shares Description Value
------ ----------- -----
27,400 PRI Automation, Inc.(1) ...................... $ 575,400
26,400 Qlogic Corp.(1) .............................. 1,772,100
22,900 Rambus, Inc.(1) .............................. 1,474,188
32,200 Teradyne, Inc.(1) ............................ 1,756,913
60,800 Transwitch Corp.(1) .......................... 2,751,200
41,600 Vitesse Semiconductor Corp.(1) ............... 2,106,000
------------
21,941,072
------------
Total Common Stocks (Cost $139,704,153) ....................... 196,427,895
------------
SHORT TERM INSTRUMENT - 6.6%
Mutual Fund
13,831,652 BT Institutional Cash Management Fund
(Cost $13,831,653) ........................... $ 13,831,653
------------
Total Investments (Cost $153,535,806) ............ 100.4% $210,259,548
Liabilities in Excess of Other Assets ............. (0.4)% (835,262)
----- -------------
Net Assets 100.0% $209,424,286
===== ============
- ----------------
(1) Non-Income Producting Security
The following abbreviation is used in portfolio descriptions:
ADR -- American Depository Receipt
See Notes to Financial Statements.
11
<PAGE>
- --------------------------------------------------------------------------------
Small Cap Portfolio
Statement of Assets and Liabilities March 31, 1999 (unaudited)
- --------------------------------------------------------------------------------
Assets
Investments, at Value (Cost of $153,535,806) ............. $210,259,548
Receivable for Fund Shares Sold .......................... 412,133
Receivable for Securities Sold ........................... 477,881
Dividends and Interest Receivable(1)...................... 10,434
Prepaid Expenses and Other ............................... 71,585
------------
Total Assets ................................................ 211,231,582
------------
Liabilities
Payable for Fund Shares Redeemed ......................... 940,241
Payable for Securities Purchased ......................... 1,266,719
Due to Bankers Trust ..................................... 99,396
Accrued Expenses and Other ............................... 29,047
------------
Total Liabilities ........................................... 2,335,403
------------
Net Assets .................................................. $208,896,178
============
Composition of Net Assets
Paid-in Capital .......................................... $152,172,436
Net Unrealized Appreciation on Investments ............... 56,723,742
------------
Net Assets .................................................. $208,896,178
============
- --------------------
(1) Includes $1,785 from the Portfolio's investment in the BT Institutional
Cash Management Fund.
- --------------------------------------------------------------------------------
Statement of Operations For the six months ended March 31, 1999 (unaudited)
- --------------------------------------------------------------------------------
Investment Income
Dividends ............................................ $ 427,767
------------
Expenses
Advisory Fees ........................................ 642,940
Administration and Services Fees ..................... 98,914
Professional Fees .................................... 16,305
Trustees Fees ........................................ 1,622
Miscellaneous ........................................ 819
------------
Total Expenses ....................................... 760,600
Less Expenses absorbed by Bankers Trust .............. (167,117)
------------
Net Expenses ...................................... 593,483
------------
Expenses in Excess of Investment Income ................. (165,716)
------------
Realized and Unrealized Gain on Investments
Net Realized Gain from Investment Transactions ....... 11,022,284
Net Change in Unrealized Appreciation/Depreciation
on Investments ..................................... 49,756,029
------------
Net Realized and Unrealized Gain on Investments ......... 60,778,313
------------
Net Increase in Net Assets from Operation ............... $ 60,612,597
============
See Notes to Financial Statements
12
<PAGE>
- --------------------------------------------------------------------------------
Small Cap Portfolio
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the six For the
months ended year ended
March 31, 1999(1) September 30, 1998
------------------ -------------------
<S> <C> <C>
Increase (Decrease) in Net Assets from:
Operations
Expenses in Excess of Investment Income .......... $ (165,716) $ (523,836)
Net Realized Gain from Investment Transactions ... 11,022,284 3,536,500
Net Change in Unrealized Appreciation/Depreciation
on Investments ................................. 49,756,029 (73,816,547)
------------- -------------
Net Increase (Decrease) in Net Assets from Operations 60,612,597 (70,803,883)
------------- -------------
Capital Transactions
Proceeds from Capital Invested ................... 76,756,346 320,120,726
Value of Capital Withdrawn ....................... (101,216,036) (361,923,813)
------------- -------------
Net Decrease in Net Assets from Capital Transactions (24,459,690) (41,803,087)
------------- -------------
Total Increase (Decrease) in Net Assets ............. 36,152,907 (112,606,970)
Net Assets
Beginning of Period ................................. 173,271,379 285,878,349
------------- -------------
End of Period ....................................... $ 209,424,286 $ 173,271,379
============= =============
</TABLE>
- ------------------
(1) Unaudited
- --------------------------------------------------------------------------------
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 period
For the years ended October 21, 1993
For the September 30, (Commencement of
six months ended ----------------------------------------- Operations) to
March 31, 1999(1) 1998 1997 1996 1995 Sept. 30, 1994
----------------- ----- ----- ----- ----- ---------------
<S> <C> <C> <C> <C> <C> <C>
Income from Investment Operations
Supplemental Data and Ratios:
Net Assets, End of Period (000s omitted) .... $209,424 $173,271 $285,878 $245,615 $123,828 $21,328
Ratios to Average Net Assets:
Net Investment Income (Expenses in
Excess of Investment Income) .......... (0.17)%(2) (0.22)% (0.24)% (0.05)% 0.19% 0.07%(2)
Expenses ................................. 0.60%(2) 0.60% 0.60% 0.60% 0.60% 0.60%(2)
Decrease Reflected in Above Expense
Ratios Due to Absorption of Expenses
by Bankers Trust ....................... 0.17%(2) 0.17% 0.17% 0.17% 0.19% 0.38%(2)
Portfolio Turnover Rate ..................... 85% 182% 188% 159% 161% 154%
</TABLE>
- ----------------------
(2) Annualized
See Notes to Financial Statements.
13
<PAGE>
- --------------------------------------------------------------------------------
Small Cap Portfolio
Notes to Financial Statements (unaudited)
- --------------------------------------------------------------------------------
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 commenced 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 on 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. Repurchase Agreements
The Portfolio may enter into repurchase agreements with financial institutions
deemed to be creditworthy by the Portfolio's Investment Advisor, subject to the
seller's agreement to repurchase such securities at a mutually agreed upon
price. Securities purchased subject to repurchase agreements are deposited with
the Portfolio's custodian and, pursuant to the terms of the repurchase
agreement, must have an aggregate market value greater than or equal to the
repurchase price plus accrued interest at all times. If the value of the
underlying securities falls below the value of the repurchase price plus accrued
interest, the Portfolio will require the seller to deposit additional collateral
by the next business day. If the request for additional collateral is not met,
or the seller defaults on its repurchase obligation, the Portfolio maintains the
right to sell the underlying securities at market value and may claim any
resulting loss against the seller. However, in the event of default or
bankruptcy by the seller, realization and/or retention of the collateral may be
subject to legal proceedings.
E. Federal Income Taxes
The Portfolio is considered a Partnership under the Internal Revenue Code.
Therefore, no federal income tax provision is necessary.
F. Option Contracts
The Portfolio may enter into option contracts. Upon the purchase of a put option
or a call option by the 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.
G. 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
0.60% of the average daily net assets of the Portfolio.
The Portfolio may invest in the BT Institutional Cash Management Fund ("the
Fund"), an open-end management investment company managed by Bankers Trust
Company ("the Company"). The Fund is offered as a cash management option to the
Portfolio and other accounts managed by the Company. Distributions from the Fund
to the Portfolio as of March 31, 1999 amounted to $331,461 and are included in
dividend income.
The Portfolio is a participant with other affiliated entities in a revolving
credit facility and a discretionary demand line of credit facility,
(collectively the "credit facilities") in the amounts of $50,000,000 and
$100,000,000, respectively. A commitment fee of .07% per annum on the average
daily amount of the available commitment is payable on a calendar
14
<PAGE>
- --------------------------------------------------------------------------------
Small Cap Portfolio
Notes to Financial Statements (unaudited)
- --------------------------------------------------------------------------------
quarter basis, and apportioned equally among all participants. Amounts borrowed
under the credit facilities will bear interest at a rate per annum equal to the
Federal Funds Rate plus .45%. No amounts were drawn down or outstanding under
the credit facilities as of and for the six month period 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 period ended March 31, 1999 were
$137,341,386 and $154,289,844, respectively.
The tax basis of investments held at March 31, 1999 was $153,535,806. The
aggregate gross unrealized appreciation for all investments was $61,288,578 and
the aggregate gross unrealized depreciation for all investments was $4,564,836.
Note 4--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.
15
<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
[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.
Small Cap Fund CUSIP #055922769
BT Investment Funds 498 SA (3/99)
Distributed by:
ICC Distributors, Inc.
Two Portland Square
Portland, ME 04101
