[Deutsche Asset Management logo omitted]
Mutual Fund
Annual Report
September 30, 2000
Mid Cap
Formerly BT Investment Capital Appreciation Fund
Formerly Equity Appreciation -- Institutional Class
[Deutsche Bank Group logo omitted]
<PAGE>
Mid Cap
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TABLE OF CONTENTS
LETTER TO SHAREHOLDERS ...................................... 3
MID CAP
Statement of Assets and Liabilities ...................... 8
Statement of Operations .................................. 9
Statements of Changes in Net Assets ...................... 10
Financial Highlights ..................................... 11
Notes to Financial Statements ............................ 13
Report of Independent Accountants ........................ 15
Tax Information .......................................... 15
MID CAP PORTFOLIO
Schedule of Portfolio Investments ........................ 16
Statement of Assets and Liabilities ...................... 18
Statement of Operations .................................. 19
Statements of Changes in Net Assets ...................... 20
Financial Highlights ..................................... 21
Notes to Financial Statements ............................ 22
Report of Independent Accountants ........................ 24
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The Fund is not insured by the FDIC and is not a deposit,
obligation of or guaranteed by Deutsche Bank. The Fund is
subject to investment risks, including possible loss of
principal amount invested.
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2
<PAGE>
Mid Cap
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LETTER TO SHAREHOLDERS
We are pleased to present you with this annual report for Mid Cap (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
MID CAPITALIZATION GROWTH STOCKS SIGNIFICANTLY OUTPERFORMED BOTH THEIR LARGE CAP
AND SMALL CAP BRETHREN DURING THE TWELVE MONTHS ENDED SEPTEMBER 30, 2000. The
S&P Midcap 400 Index returned 43.22% for the annual period as compared to the
large cap return of the S&P 500 Index of 13.28% and the small cap return of the
Russell 2000 Index of 23.39%. Throughout the annual period, mid cap companies
exhibited strong earnings growth and attractive relative valuations. Growth
outperformed value within the mid cap sector. Still, a theme of "volatility and
reversal" dominated the mid cap equity market as well as the broader equity
markets.
OVERALL, THE FOURTH CALENDAR QUARTER OF 1999 EXPERIENCED SIGNIFICANT STRENGTH IN
THE EQUITY MARKETS, AS THE US ECONOMY REMAINED ROBUST WITH FEW SIGNS OF
INFLATION. Investors disregarded concerns of higher interest rates and focused
on the positives of economic growth, as productivity stayed strong. This
sentiment prevailed despite tight labor markets and economic momentum that
continued to build around the world. However, equity market strength was
relatively narrow and confined primarily to the technology and
telecommunications sectors across all market capitalizations.
JANUARY 2000 BEGAN WITH WEAKNESS IN THE BROADER MARKETS, AS INVESTORS LOOKED
TOWARD THE POSSIBILITY OF A NUMBER OF ADDITIONAL FEDERAL RESERVE BOARD INTEREST
RATE INCREASES IN THE FIRST HALF OF THE YEAR 2000 FOLLOWING A ROBUST FOURTH
QUARTER AND HOLIDAY SELLING SEASON. Following this short-lived early weakness,
the mid cap market, as well as the broader equity markets, resumed strength,
narrowly confined to technology, telecommunications and select biotechnology
issues where growth was expected to continue despite rising interest rates. In
February, there was a sell off of such "Old Economy" sectors as manufacturing
and other cyclical industries, however the "New Economy" sectors -- such as
technology and biotechnology -- continued to do well, helping to boost the S&P
Midcap 400 Index, and broader equity markets, overall. Markets weakened in
mid-March on fears of further interest rate increases as well as valuation
concerns in the technology and biotechnology areas.
THE SELL-OFF IN EQUITY MARKETS THAT BEGAN MID-MARCH CONTINUED INTO THE SECOND
QUARTER. The prospect of higher interest rates and the subsequent gradual
slowdown in economic growth, a modest pickup in inflation, and profit taking
after a strong first quarter, negatively affected the broad US equity markets.
"Old Economy" stocks outperformed "New Economy" stocks, as certain growth
sectors were impacted especially hard -- particularly technology and
telecommunications. For several reasons, equity markets rebounded later in the
second quarter. Inflation fears subsided somewhat. Optimism arose that the
Federal Reserve Board could engineer a "soft landing" for the US economy after a
number of interest rate increases. And finally, earnings growth estimates
remained strong. Performance was narrow within mid cap equities, as only three
of the eleven sectors -- health care, energy and utilities -- ended the quarter
with positive returns.
THE THIRD QUARTER OF 2000 PROVED TO BE DIFFICULT FOR STOCKS ACROSS ALL MARKET
CAPITALIZATIONS. Concerns about rising energy prices, a weak euro, a slowing US
economy and how these factors would impact company revenue and earnings growth
caused volatility in the equity markets. In the mid cap market, the quarter
began with a brief upswing in July, as inflationary fears subsided amid
expectations that the Federal Reserve Board would not increase interest rates in
August. However, upward momentum reversed mid-July, as profit warnings started
an overall technology stock decline that carried over to the rest of the US
equity markets. August witnessed a brief turnaround. Primarily driven by data
showing the US
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TEN LARGEST STOCK HOLDINGS
(percentages are based on market value of total investments in the Portfolio)
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Mercury Interactive Corp ...................... 3.24%
Alteon Websystems, Inc. ....................... 2.44
Flextronics International ..................... 2.30
Noble Drilling Corp. .......................... 2.19
Santa Fe International Corp. .................. 2.17
Micrel, Inc. .................................. 2.04
SDL, Inc. ..................................... 2.02
Harley-Davidson, Inc. ......................... 1.88
BJs Wholesale Club, Inc. ...................... 1.77
Conexant Systems, Inc. ........................ 1.73
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3
<PAGE>
Mid Cap
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LETTER TO SHAREHOLDERS
economy coming into better balance, with demand moderating and productivity
rising, the Federal Reserve Board once again refrained from raising interest
rates. September experienced renewed concerns about the effects of rising oil
prices on US and worldwide economic growth as well as revenue and earnings
growth prospects amid a slowing US economy. The mid cap market led the major
indices, as it traded flat for the month. Positive returns from nine of the
eleven sectors drove strong quarterly returns for the mid cap market. The
utilities, financials, health care, and technology sectors led performance for
the quarter.
INVESTMENT REVIEW
The Fund outperformed its benchmark for the twelve month period, particularly
worth noting given the extremely high volatility in the mid cap equity market
during this annual period. Specific stock selection and sector positioning
bolstered Fund performance.
For example, among the Fund's largest holdings within the top performing sectors
were Northeast Utilities Corp., Medimmune Inc., Alteon Websystems, Inc. and
Mercury Interactive Corp. Given the narrowness of mid cap outperformance, our
team's stock-picking skills were critical to the Fund's success. So, too, was
our extensive research into sectors.
In the fourth quarter of 1999, the Fund outperformed the S&P MidCap 400 Index
due to overweight positions in the three best performing sectors -- technology,
communications services and health care. Also having a positive impact on
relative performance were underweight positions in three of the poorer
performing sectors -- utilities, financials and basic materials.
The energy sector was a top performer in the first quarter of 2000, and the
Fund's overweight position there boosted Portfolio returns. Technology continued
to be a winning
<TABLE>
<CAPTION>
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CUMULATIVE AVERAGE ANNUAL
TOTAL RETURNS TOTAL RETURNS
Periods ended Past 1 Past 3 Past 5 Since Past 1 Past 3 Past 5 Since
September 30, 2000 year years years inception year years years inception
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mid Cap Investment Class1
(inception 3/9/93) 53.65% 100.14% 157.77% 333.83% 53.65% 26.02% 20.85% 21.42%
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S&P MidCap 400 Index2 43.22% 68.39% 167.04% 266.75%5 43.22% 18.97% 21.71% 18.92%5
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Lipper Multicap
Growth Average3 53.43% 107.88% 205.80% 333.31%5 53.43% 26.71% 24.45% 21.04%5
------------------------------------------------------------------------------------------------------------------
Mid Cap InstitutionalClass1,4
(inception 10/12/93) 55.50% 100.46% 161.09% 269.19% 55.50% 26.09% 21.16% 20.62%
------------------------------------------------------------------------------------------------------------------
S&P MidCap 400 Index2 43.22% 68.39% 167.04% 240.13%5 43.22% 18.97% 21.71% 19.36%5
------------------------------------------------------------------------------------------------------------------
Lipper Multicap
Growth Average3 53.43% 107.88% 205.80% 287.16%5 53.43% 26.71% 24.45% 21.14%5
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<FN>
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1 PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. THE FUND'S RECENT
PERFORMANCE WAS ACHIEVED DURING FAVORABLE MARKET CONDITIONS THAT MAY NOT BE
SUSTAINED. 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. These figures assume the reinvestment of dividend and capital
gain distributions. Performance figures for the classes differ because each
class maintains a distinct expense structure.Performance would have been lower
during the specified periods if certain fees and expenses had not been waived
by the Fund.
2 The S&P MidCap 400 Index consists of 400 domestic stocks chosen for market
size, liquidity and industry group representation. Index returns do not
reflect expenses, which have been deducted from theFund's return.
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 category
indicated. These figures do not reflect sales charges.
4 At the close of business on 8/31/00, shares of Equity Appreciation --
Institutional Class converted to Institutional Class shares of Mid Cap. Equity
Appreciation -- Institutional Class was managed by the same investment
management team with the same objectives, policies and strategies as Mid Cap.
The performance shown reflects Equity Appreciation -Institutional Class
shares' actual returns from its inception on 10/12/93. Performance for periods
after 8/31/00 reflect the performance of the Mid Cap -- Institutional Class.
5 Benchmark returns are for the periods beginning March 31, 1993, for the
Investment Class and October 31, 1993, for the Institutional Class.
</FN>
</TABLE>
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4
<PAGE>
Mid Cap
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LETTER TO SHAREHOLDERS
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PORTFOLIO DIVERSIFICATION
By Sector as of September 30, 2000
(percentages are based on market value of total investments in the Portfolio)
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Technology ................................... 36.38%
Health Care .................................. 11.27
Energy ....................................... 10.99
Utilities .................................... 10.76
Consumer Cyclicals ........................... 6.53
Financials ................................... 5.46
Capital Goods ................................ 4.52
Consumer Staples ............................. 3.47
Transportation ............................... 1.23
Communication Services ....................... 0.77
Cash ......................................... 8.62
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sector during these months, and the Fund remained overweight there as well.
Performance was also aided during these months by underweight positions in
financials, basic materials and consumer cyclicals, three of the poorer
performing sectors.
Second quarter 2000 performance was helped by an overweight position in energy,
as well as underweight positions in the poorly performing basic materials,
consumer cyclicals and consumer staples sectors. Fund performance was impeded by
an overweight position in technology, one of the poorer performing sectors for
the quarter, as well as underweight positions in health care and utilities, two
of the three strongest performing sectors. In the third calendar quarter, Fund
performance was impacted by underweight positions in the strongly performing
utilities, financials, and health care sectors, while an overweight position in
technology positively impacted the Fund.
MANAGER OUTLOOK
Our long-term outlook for the equity markets in general is favorable. Moderating
economic growth, tame inflationary pressures, high labor productivity, and
strong mid cap profit estimates all contribute to our overall favorable outlook
for the mid cap equity market in particular. Although we anticipate future
periods of volatility in the marketplace while global and domestic economic and
political events run their courses, the outlook for profit growth in the mid cap
sector remains strong and relative valuations continue to be attractive.
At the same time, there are a couple of risks to the equity markets in general,
including the mid cap market, over the rest of the year. These include:
o uncertainty over oil prices, which may impact the US equity markets, and
higher overall energy costs, which may result in a deceleration of US and
global economic growth and could impact earnings of companies with foreign
exposure;
o and the SEC's new Regulation Full Disclosure (Reg FD), which could mean lower
overall market multiples as a result of less predictability of company
earnings.
Given the recent high volatility in the stock market, it is important to keep in
mind that we remain disciplined in our process, and we continue to:
o focus on companies we believe offer compelling valuations relative to their
growth rates;
o focus on companies that historically have had strong, consistent earnings and
revenue growth;
o use extensive fundamental research to seek attractive investment opportunities
in unrecognized growth companies and sectors;
o strictly adhere to our sell discipline seeking to help mitigate risk;
o and seek to 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 capital growth over the long term.
/S/SIGNATURE Doris R. Klug
Doris R. Klug
Portfolio Manager of the MID CAP PORTFOLIO
September 30, 2000
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5
Mid Cap
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PERFORMANCE COMPARISON
MID CAP -- INVESTMENT CLASS AND THE S&P MIDCAP 400 INDEX
GROWTH OF A $10,000 INVESTMENT (SINCE MARCH 9, 1993)1
[Line graph omitted]
plot points as follows:
Mid Cap Invst. S&P MidCap 400 Index - $
3/93 10010 10000
9/93 11850 10748
3/94 11420 10616
9/94 11740 10921
3/95 12870 11500
9/95 16830 13735
3/96 16803 14790
9/96 18909 15658
3/97 15935 16359
9/97 21677 21779
3/98 23318 24379
9/98 19201 20406
3/99 26202 24491
9/99 28235 25609
3/00 44667 33818
9/00 43383 36680
Average Annual Total Return for the Periods Ended September 30, 2000
One Year 53.65% Five Year 20.85% Since 3/9/931 21.42%
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1 The Fund's inception date.
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. THE FUND'S RECENT
PERFORMANCE WAS ACHIEVED DURING FAVORABLE MARKET CONDITIONS THAT MAY NOT BE
SUSTAINED. 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. These figures assume the reinvestment of dividend and capital gain
distributions. Performance would have been lower during the specified periods if
certain fees and expenses had not been waived by the Fund. The S&P MidCap 400
Index is an unmanaged index containing 400 domestic stocks chosen for market
size, liquidity and industry group representation. Benchmark return is for the
period beginning March 31, 1993.
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6
<PAGE>
Mid Cap
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PERFORMANCE COMPARISON
MID CAP -- INSTITUTIONAL CLASS (FORMERLY EQUITY APPRECIATION
FUND)1 AND THE S&P MIDCAP 400 INDEX
GROWTH OF A $10,000 INVESTMENT (SINCE OCTOBER 12, 1993)2
[line graph omitted]
plot points as follows:
Mid Cap Inst. S&P MidCap 400 Index - $
10/93 9900 10000
3/94 9560 9845
9/94 9840 10128
3/95 10800 10664
9/95 14140 12737
3/96 14119 13715
9/96 15901 14520
3/97 13542 15170
9/97 18417 20197
3/98 19815 22608
9/98 16450 18923
3/99 22148 22711
9/99 23742 23748
3/00 37654 31361
9/00 36919 30630
Average Annual Total Return for the Periods Ended September 30, 2000
One Year 55.50% Five Year 21.16% Since 10/12/932 20.62%
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1 At the close of business on 8/31/00, shares of Equity Appreciation --
Institutional Class converted to InstitutionalClass shares ofMid Cap. The
performance shown reflects Equity Appreciation -- Institutional Class shares'
actual returns from its inception on 10/12/93.Performance for periods after
8/31/00 reflect the performance of the Mid Cap -- InstitutionalClass.
2 The Fund's inception date.
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. THE FUND'S RECENT
PERFORMANCE WAS ACHIEVED DURING FAVORABLE MARKET CONDITIONS THAT MAY NOT BE
SUSTAINED. 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. These figures assume the reinvestment of dividend and capital gain
distributions. Performance would have been lower during the specified periods if
certain fees and expenses had not been waived by the Fund. The S&P MidCap 400
Index is an unmanaged index containing 400 domestic stocks chosen for market
size, liquidity and industry group representation. Benchmark return is for the
period beginning October 31, 1993.
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7
<PAGE>
Mid Cap
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STATEMENT OF ASSETS AND LIABILITIES
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SEPTEMBER 30, 2000
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ASSETS
Investment in Mid Cap Portfolio, at Value .................... $468,842,984
Receivable for Shares of Beneficial Interest Subscribed ...... 1,057,277
Prepaid Expenses and Other ................................... 21,357
------------
Total Assets .................................................... 469,921,618
------------
LIABILITIES
Due to Bankers Trust ......................................... 146,424
Payable for Shares of Beneficial Interest Redeemed ........... 7,523,382
Accrued Expenses and Other ................................... 110,922
------------
Total Liabilities ............................................... 7,780,728
------------
NET ASSETS ...................................................... $462,140,890
============
COMPOSITION OF NET ASSETS
Paid-in Capital .............................................. $372,901,839
Accumulated Net Realized Gain from Investment Transactions ... 9,324,465
Net Unrealized Appreciation on Investments ................... 79,914,586
------------
NET ASSETS ...................................................... $462,140,890
============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
(net assets divided by shares outstanding)
Investment Class1 ............................................ $ 17.57
============
Institutional Class2 ......................................... $ 17.57
============
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1 Net asset value, redemption price and offering price per share based on net
assets of $47,820,128 and 2,721,119 shares of beneficial interest
outstanding; $0.001 par value, unlimited number of shares of beneficial
interest authorized.
2 Net asset value, redemption price and offering price per share based on net
assets of $414,320,762 and 23,578,698 shares of beneficial interest
outstanding; $0.001 par value, unlimited number of shares of beneficial
interest authorized. On August 31, 2000, Equity Appreciation was merged into
Mid Cap and all assets were converted into Mid Cap Institutional Class. See
Footnote Number 5.
See Notes to Financial Statements.
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8
<PAGE>
Mid Cap
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STATEMENT OF OPERATIONS
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FOR THE YEAR ENDED
SEPTEMBER 30, 2000
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INVESTMENT INCOME
Net Investment Income Allocated from Mid Cap Portfolio ........ $ 178,984
-----------
EXPENSES
Administration and Services Fees .............................. 482,786
Professional Fees ............................................. 27,684
Registration Fees ............................................. 26,349
Printing and Shareholder Reports .............................. 16,265
Trustees Fees ................................................. 4,192
Miscellaneous Expenses ........................................ 24,268
-----------
Total Expenses ................................................... 581,544
Less: Fee Waivers or Expense Reimbursements ...................... (182,500)
-----------
Net Expenses ..................................................... 399,044
-----------
EXPENSES IN EXCESS OF INCOME ..................................... (220,060)
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net Realized Gain from Investment Transactions ................ 11,701,577
Net Change in Unrealized Appreciation/Depreciation on Investments 74,967,361
-----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS .................. 86,668,938
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS ....................... $86,448,878
===========
See Notes to Financial Statements.
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9
<PAGE>
Mid Cap
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STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEARS ENDED SEPTEMBER 30,
2000 1999
-------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS
Expenses in Excess of Income ...................................... $ (220,060) $ (144,859)
Net Realized Gain from Investment Transactions .................... 11,701,577 8,027,605
Net Change in Unrealized Appreciation/Depreciation
on Investments .................................................. 74,967,361 1,426,125
------------ ------------
Net Increase in Net Assets from Operations ........................... 86,448,878 9,308,871
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS
Net Realized Gain from Investment Transactions
Investment Class ................................................ (7,759,652) (3,057,167)
------------ ------------
CAPITAL TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Sales of Shares ..................................... 43,486,787 9,866,222
Value of Shares Issued in Connection with Merger .................. 363,271,526 --
Dividend Reinvestments ............................................ 5,252,658 1,940,215
Cost of Shares Redeemed ........................................... (57,291,310) (14,822,874)
------------ ------------
Net Increase (Decrease) from Capital Transactions in
Shares of Beneficial Interest ..................................... 354,719,661 (3,016,437)
------------ ------------
TOTAL INCREASE IN NET ASSETS ......................................... 433,408,887 3,235,267
NET ASSETS
Beginning of Year ................................................. 28,732,003 25,496,736
------------ ------------
End of Year ....................................................... $462,140,890 $ 28,732,003
============ ============
</TABLE>
See Notes to Financial Statements.
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10
<PAGE>
Mid Cap
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FINANCIAL HIGHLIGHTS
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INVESTMENT CLASS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED SEPTEMBER 30,
2000 1999 1998 1997 1996
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
NET ASSET VALUE, BEGINNING OF YEAR ................. $ 14.77 $ 11.38 $ 15.72 $ 16.79 $ 16.83
------- ------- ------- ------- -------
INCOME FROMINVESTMENT OPERATIONS
Expenses in Excess of Income .................... (0.06) (0.07) (0.12) (0.13) (0.10)
Net Realized and Unrealized Gain (Loss)
from Investment Transactions .................. 6.79 4.99 (1.58) 2.13 1.89
------- ------- ------- ------- -------
Total from Investment Operations ................ 6.73 4.92 (1.70) 2.00 1.79
------- ------- ------- ------- -------
DISTRIBUTIONS TO SHAREHOLDERS
Net Realized Gain from Investment
Transactions .................................. (3.93) (1.53) (2.64) (3.07) (1.83)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF YEAR ....................... $ 17.57 $ 14.77 $ 11.38 $ 15.72 $16.79
======= ======= ======= ======= =======
TOTAL INVESTMENT RETURN ............................ 53.65% 47.05% (11.42)% 14.64% 12.35%
SUPPLEMENTAL DATA AND RATIOS:
Net Assets, End of Year
(000s omitted) ................................ $47,820 $28,732 $25,497 $49,002 $67,385
Ratios to Average Net Assets:
Expenses in Excess of Income .................. (0.40)% (0.58)% (0.70)% (0.77)% (0.66)%
Expenses After Waivers, Including
Expenses of the Mid Cap Portfolio .......... 1.25% 1.25% 1.25% 1.25% 1.25%
Expenses Before Waivers, Including
Expenses of the Mid Cap Portfolio .......... 1.70% 1.88% 1.64% 1.54% 1.51%
</TABLE>
See Notes to Financial Statements.
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11
<PAGE>
Mid Cap
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FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
INSTITUTIONAL CLASS1 FOR THE PERIOD
AUGUST 31, 2000
THROUGH
SEPTEMBER 30, 2000
--------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
NET ASSET VALUE, BEGINNING OF PERIOD ..................... $ 18.60
--------
INCOME FROM INVESTMENT OPERATIONS
Expenses in Excess of Income .......................... (0.00)2
Net Realized and Unrealized Gain (Loss)
on Investment Transactions .......................... (1.03)
--------
Total from Investment Operations ......................... (1.03)
--------
DISTRIBUTIONS TO SHAREHOLDERS
Net Realized Gain from Investment
Transactions ........................................ --
--------
NET ASSET VALUE, END OF PERIOD ........................... $17.57
========
TOTAL INVESTMENT RETURN .................................. 55.50%4
SUPPLEMENTAL DATA AND RATIOS:
Net Assets, End of Year (000s omitted) ................ $414,320
Ratios to Average Net Assets:
Expenses in Excess of Income ........................ (.17)%3
Expenses After Waivers, Including
Expenses of the Mid Cap Portfolio ................ 1.00%3
Expenses Before Waivers, Including
Expenses of the Mid Cap Portfolio ................ 1.45%3
--------------------------------------------------------------------------------
1 On August 31, 2000, Equity Appreciation was merged into Mid Cap and all
assets were converted into Mid Cap Institutional Class.
2 Amount is less than 0.01.
3 Annualized.
4 At the close of business on 8/31/00, shares of Equity Appreciation --
Institutional Class converted to Institutional Class shares of Mid Cap.
Equity Appreciation -- Institutional Class was managed by the same investment
management team with the same objectives, policies and strategies as Mid Cap.
The performance shown reflects Equity Appreciation -Institutional Class
shares' actual returns from its inception on 10/12/93. Performance for
periods after 8/31/00 reflect the performance of the Mid Cap -- Institutional
Class.
See Notes to Financial Statements.
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12
<PAGE>
Mid Cap
--------------------------------------------------------------------------------
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. Mid Cap (the "Fund") is one of the funds
offered to investors by the Trust. The Fund began operations and offering shares
of beneficial interest on March 9, 1993.
The Fund offers two classes of shares to investors: the Investment Class and the
Institutional Class. The Investment Class began operations and offering shares
of beneficial interest on March 9, 1993. The Institutional Class began
operations and offering shares of beneficial interest on August 31, 2000 when
Equity Appreciation -- Institutional Class, one of the BT Pyramid Funds, merged
into Mid Cap Institutional Class. Equity Appreciation -- Institutional Class
began operations and offering shares of beneficial interest on October 12, 1993.
Both classes of shares have identical rights to earnings, assets, and voting
privileges, except that each class has its own expenses and exclusive voting
rights with respect to matters affecting it.
The Fund seeks to achieve its investment objective by investing substantially
all of its assets in the Mid 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, 2000, 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 OF SECURITIES
Valuation of securities by the Portfolio is discussed in Note 1B of the
Portfolio's Notes to Financial Statements, which are included elsewhere in this
report.
C. INVESTMENT INCOME
The Fund earns income, net of expenses, daily on its investment in the
Portfolio. All of the net investment income and realized and unrealized gains
and losses from the securities transactions of the Portfolio are allocated pro
rata among the investors in the Portfolio at the time of such determination. Net
investment income is allocated daily to each class of shares based upon its
relative proportion of net assets.
D. DISTRIBUTIONS
It is the Fund's policy to declare and distribute dividends annually to
shareholders from net investment income, if any. Dividends and distributions
payable to shareholders are recorded by the Fund on the ex-dividend date.
Distributions of net realized short-term and long-term capital gains, if any,
earned by the Fund are made at least annually to the extent they exceed capital
loss carryforwards.
E. FEDERAL INCOME TAXES
It is the Fund's policy to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and distribute substantially
all of its taxable income to shareholders. Therefore, no federal income tax
provision is required.
The Fund may periodically make reclassifications among certain of its capital
accounts as a result of the differences in the characterization and allocation
of certain income and capital gains distributions determined annually in
accordance with federal tax regulations which may differ from accounting
principles generally accepted in the United States.
These book/tax differences are either temporary or permanent in nature. To the
extent these differences are permanent, they are charged or credited to
paid-in-capital or accumulated net realized gain, as appropriate, in the period
that the differences arise. Accordingly, permanent differences as of September
30, 2000 have been primarily attributable to certain net operating losses and
the utilization of earnings and profits distributed to shareholders on
redemption of shares as a part of the dividends paid deduction for income tax
purposes and have been reclassified to the following accounts:
UNDISTRIBUTED ACCUMULATED
NET INVESTMENT NET REALIZED PAID-IN
FUND INCOME (LOSS) GAINS (LOSSES) CAPITAL
-------------- ---------------- -------------- ----------
Mid Cap --
Investment Class $220,060 $(2,338,770) $2,118,710
--------------------------------------------------------------------------------
13
<PAGE>
Mid Cap
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
F. OTHER
The Trust accounts separately for the assets, liabilities, and operations of
each of its funds and each of its classes. Expenses directly attributable to
each fund or class are charged to that fund or class, while expenses that are
attributable to the Trust or the Fund are allocated among the funds in the Trust
or the classes in the Fund, respectively.
G. ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States 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") an indirect wholly owned subsidiary of Deutsche
Bank AG. Under this agreement, Bankers Trust provides administrative, custody,
and shareholder services to the Fund. The Trust has entered into an agreement
with Investment Company Capital Corp., an indirect wholly owned subsidiary of
Deutsche Bank, AG, to provide transfer agency services to the Trust. All of
these services are provided 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 contractually agreed to waive its fees and reimburse expenses
of each Class of Shares through January 31, 2001, to the extent necessary, to
limit all expenses as follows:Investment Class shares to .65% of the average
daily net assets of the Class, excluding expenses of the Portfolio and 1.25% of
the average daily net assets of the Class, including expenses of the Portfolio;
Institutional Class shares to .40% of the average daily net assets of the Class,
excluding expenses of the Portfolio, and 1.00% of the average daily net assets
of the Class, including expenses of the Portfolio.
ICC Distributors, Inc. provides distribution services to the Fund.
NOTE 3 -- SHARES OF BENEFICIAL INTEREST
At September 30, 2000, there were an unlimited number of shares of beneficial
interest authorized. Transactions in shares of beneficial interest were as
follows:
INVESTMENT CLASS
------------------------------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
Sold 1,671,890 $ 28,367,640 707,455 $ 9,866,222
Reinvested 383,966 5,252,658 173,543 1,940,215
Redeemed (1,279,979) (20,721,643) (1,175,938) (14,822,874)
---------- ------------ ---------- ------------
Net Increase
(Decrease) 775,877 $ 12,898,655 (294,940) $ (3,016,437)
========== ============ ========== ============
INSTITUTIONAL CLASS
----------------------------
FOR THE PERIOD
AUGUST 31, 20001
THROUGH
SEPTEMBER 30, 2000
-----------------------------
SHARES AMOUNT
----------- --------------
Sold 834,055 $ 15,119,147
Issued in Merger 24,799,785 363,271,526
Reinvested -- --
Redeemed (2,055,142) (36,569,667)
----------- ------------
Net Increase 23,578,698 $341,821,006
=========== ============
--------------------------------------------------------------------------------
1 Inception date.
NOTE 4 -- FUND NAME CHANGE
On January 31, 2000, the Fund changed its name from BT Investment Capital
Appreciation Fund to Mid Cap.
NOTE 5 -- FUND MERGER
On August 31, 2000 the net assets of the Equity Appreciation -- Institutional
Class, one of the Funds comprising the BT Pyramid Mutual Funds, was merged into
Mid Cap, one of the Funds comprising the BT Investment Funds, pursuant to an
agreement and plan of reorganization dated July 28, 2000. The transaction was
structured to qualify as a tax-free reorganization under the Internal Revenue
Code. Prior to reorganization, the Equity Appreciation -- Institutional Class
had net assets of $461,299,975, shares outstanding of 19,712,720, and a Net
Asset Value of $23.40. Mid Cap shares were issued at a conversion factor of
1.25806 shares for each Equity Appreciation -- Institutional Class share. Mid
Cap was deemed to be the accounting survivor.
--------------------------------------------------------------------------------
14
<PAGE>
Mid Cap
--------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of BT Investment Funds and
Shareholders of Mid Cap:
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
Mid Cap (one of the funds comprising the BT Investment Funds, hereafter referred
to as the "Fund") at September 30, 2000, 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 accounting principles generally accepted
in the United States. 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 auditing standards generally accepted in
the United States, 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, 2000 by
correspondence with the transfer agent, provide a reasonable basis for our
opinion.
PricewaterhouseCoopers LLP
Baltimore, Maryland
November 8, 2000
--------------------------------------------------------------------------------
TAX INFORMATION (Unaudited) For the Tax Year Ended September 30, 2000
The amounts may differ from those elsewhere in this report because of
differences between tax and financial reporting requirements.
The Fund hereby designates the following earned amount as 20% rate capital gain
dividends for the fiscal year ended September 30, 2000, $10,099,192. The Fund's
distributions to shareholders included $1.97 per share from long term capital
gains, all of which is taxable at the 20% capital gains rate.
Of the ordinary income distributions made during the fiscal year ended September
30, 2000, 4.07%, qualifies for the dividends received deduction available to
corporate shareholders.
--------------------------------------------------------------------------------
15
<PAGE>
Mid Cap Portfolio
--------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS September 30, 2000
--------------------------------------------------------------------------------
SHARES SECURITY VALUE
--------------------------------------------------------------------------------
INVESTMENTS IN UNAFFILIATED ISSUERS
COMMON STOCKS -- 92.6%
CAPITAL GOODS -- 4.6%
133,400 Flextronics International Ltd. ... $ 10,955,475
90,100 Molex, Inc. Class A1 ............. 3,733,519
47,800 Plexus Corp. ..................... 3,369,900
24,700 Sanmina Corp.1 ................... 2,312,537
20,800 Spectra-Physics Lasers, Inc. ..... 1,114,100
------------
21,485,531
------------
COMMUNICATION SERVICES-- 0.8%
76,850 Allegiance Telecom, Inc. ......... 2,862,662
60,000 Covad Communications Group, Inc.1 802,500
------------
3,665,162
------------
CONSUMER CYCLICALS -- 6.6%
78,800 Apollo Group, Inc. -- Class A1 ... 3,142,150
246,700 BJ's Wholesale Club, Inc.1 ....... 8,418,637
276,600 Family Dollar Stores, Inc. ....... 5,324,550
51,730 Gucci Group NV ................... 5,218,264
186,300 Harley-Davidson, Inc. ............ 8,919,112
------------
31,022,713
------------
CONSUMER STAPLES -- 3.5%
517,800 Caremark Rx, Inc.1 ............... 5,825,250
114,400 Cheesecake Factory1 .............. 4,947,800
156,200 Estee Lauder Cos. Inc. (The) Class A 5,720,825
------------
16,493,875
------------
ENERGY -- 11.1%
124,300 BJ Services Co.1 ................. 7,597,837
79,600 Cooper Cameron Corp.1 ............ 5,865,525
76,400 Mitchell Energy & Development
Corp. -- Class A ............... 3,562,150
206,880 Noble Drilling Corp.1 ............ 10,395,720
228,400 Sante Fe International Corp. ..... 10,292,275
97,300 Smith International, Inc.1 ....... 7,936,031
144,700 Tidewater, Inc. .................. 6,583,850
------------
52,233,388
------------
FINANCIALS -- 5.5%
88,900 AMBAC Financial Group ............ 6,511,925
156,000 Astoria Financial Corp. .......... 6,025,500
52,700 Legg Mason, Inc. ................. 3,063,187
326,300 North Fork Bancorp ............... 7,056,237
355,400 Sovereign Bancorp, Inc. .......... 3,287,450
------------
25,944,299
------------
HEALTH CARE -- 11.4%
123,800 Alkermes, Inc.1 .................. 4,781,775
45,500 Forest Laboratories, Inc.1 ....... 5,218,281
296,300 Health Management Associates, Inc.1 6,166,744
93,900 Immunex Corp. 1 .................. 4,084,650
73,900 Invitrogen Corp.1 ................ 5,256,137
75,500 King Pharmaceuticals, Inc.1 ...... 2,524,531
90,600 Medimmune, Inc.1 ................. 6,998,850
84,200 Novoste Corp.1 ................... 3,578,500
53,600 Syncor International Corp.1 ...... 1,973,150
132,200 Tenet Healthcare Corp.1 .......... 4,808,775
88,600 Trigon Healthcare, Inc.1 ......... 4,657,038
40,900 Universal Health Services, Inc. .. 3,502,062
------------
53,550,493
------------
TECHNOLOGY -- 36.9%
63,200 Akamai Technologies1 ............. 3,318,988
106,900 Alteon Websystems, Inc.1 ......... 11,586,958
16,400 Ariba, Inc.1 ..................... 2,349,556
34,400 Avanex Corp.1 .................... 3,704,450
18,300 Avici Systems1 ................... 1,740,788
143,970 Bookham Technology Plc1 .......... 6,172,714
26,700 Brocade Communications 1 ......... 6,301,200
25,400 Bruker Daltonics Inc.1 ........... 1,127,125
8,600 CacheFlow, Inc.1 ................. 1,229,800
58,500 Caliper Technologies 1 ........... 3,389,344
52,800 Coherent, Inc.1 .................. 3,590,400
73,200 Commerce One, Inc.1 .............. 5,746,200
196,600 Conexant Systems1 ................ 8,232,625
5,200 Elantec Semiconductor, Inc.1 ..... 518,050
133,000 Electronic Arts1 ................. 6,566,875
26,100 E.piphany, Inc.1 ................. 2,011,331
83,500 Foundry Networks 1 ............... 5,589,281
97,100 Illumina, Inc.1 .................. 4,405,913
62,900 International Rectifier Corp.1 ... 3,180,381
35,050 Interwoven, Inc. 1 ............... 3,962,841
113,550 LSI Logic Corp. 1 ................ 3,321,338
22,900 McData Corp. Class B 1 ........... 2,814,195
98,300 Mercury Interactive Corp.1 ....... 15,408,525
144,600 Micrel, Inc.1 .................... 9,688,200
24,200 Micromuse, Inc.1 ................. 4,862,688
66,000 Molecular Devices Corp.1 ......... 6,484,500
26,800 National Instruments Corp.1 ...... 1,182,550
109,800 National Semiconductor Corp.1 .... 4,419,450
92,400 Netro Corp.1 ..................... 5,474,700
71,500 Qlogic Corp.1 .................... 6,292,000
49,100 Redback Networks1 ................ 8,049,331
67,300 Scientific-Atlanta, Inc. ......... 4,281,963
31,200 SDL, Inc.1 ....................... 9,609,600
135,900 Vitria Technology Inc.1 .......... 6,336,338
------------
172,950,198
------------
See Notes to Financial Statements.
--------------------------------------------------------------------------------
16
<PAGE>
Mid Cap Portfolio
--------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS September 30, 2000
--------------------------------------------------------------------------------
SHARES SECURITY VALUE
--------------------------------------------------------------------------------
TRANSPORTATION -- 1.3%
41,000 C.H. Robinson Worldwide, Inc. .... $ 2,310,734
78,700 Expeditors International of
Washington, Inc. ............... 3,546,419
------------
5,857,153
------------
UTILITIES -- 10.9%
104,600 CLECO Corp. ...................... 4,890,050
104,900 Constellation Energy Group, Inc. . 5,218,775
252,700 Energy East Corp. ................ 5,717,338
241,500 Kansas City Power & Light Co. .... 6,445,031
164,000 Montana Power Co. ................ 5,473,500
193,100 NiSource ......................... 4,706,812
289,000 Northeast Utilities Corp. ........ 6,267,688
120,700 NRG Energy, Inc.1 ................ 4,405,550
39,800 Nstar ............................ 1,601,950
38,300 Southern Energy Inc.1 ............ 1,201,663
181,900 TECO Energy, Inc. ................ 5,229,620
------------
51,157,977
------------
TOTAL COMMON STOCKS
(Cost $354,080,290) ..................... 434,360,789
------------
TOTAL INVESTMENT IN UNAFFILIATED ISSUERS
(Cost $354,080,290) ..................... 434,360,789
------------
INVESTMENTS IN AFFILIATED
INVESTMENT COMPANIES
SHORT-TERM INSTRUMENTS -- 8.8%
MUTUAL FUND -- 8.8%
40,987,341 Cash Management Institutional .. 40,987,341
------------
TOTAL SHORT-TERM INSTRUMENTS
(Cost $40,987,341) ...................... 40,987,341
------------
TOTAL INVESTMENT IN AFFILIATED IN
INVESTMENT COMPANIES
(Cost $40,987,341) ...................... 40,987,341
------------
TOTAL INVESTMENTS
(Cost $395,067,631) ............. 101.4% $475,348,130
LIABILITIES IN EXCESS OF OTHER ASSETS (1.4) (6,505,104)
----- ------------
NET ASSETS ......................... 100.0% $468,843,026
===== ============
--------------------------------------------------------------------------------
1 Non-income producing security.
See Notes to Financial Statements.
--------------------------------------------------------------------------------
17
<PAGE>
Mid Cap Portfolio
--------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
--------------------------------------------------------------------------------
SEPTEMBER 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Investments in Unaffiliated Issuers, at Value (Cost of $354,080,290) ........................... $434,360,789
Investments in Affiliated Investment Companies, at Value (Cost of $40,987,341) ................. $40,987,341
Dividends Receivable1 .......................................................................... 315,548
Receivable for Securities Sold ................................................................. 5,002,099
Receivable for Shares of Beneficial Interest Subscribed ........................................ 740,160
------------
Total Assets ...................................................................................... 481,405,937
------------
LIABILITIES
Payable for Securities Purchased ............................................................... 12,304,190
Due to Bankers Trust ........................................................................... 236,587
Accrued Expenses and Other ..................................................................... 22,134
------------
Total Liabilities ................................................................................. 12,562,911
------------
NET ASSETS ........................................................................................ $468,843,026
============
COMPOSITION OF NET ASSETS
Paid-in Capital ................................................................................ $388,562,527
Net Unrealized Appreciation on Investments ..................................................... 80,280,499
------------
NET ASSETS ........................................................................................ $468,843,026
============
<FN>
--------------------------------------------------------------------------------
1 Includes $235,900 from the Portfolio's investment in affiliated investment
companies.
</FN>
</TABLE>
See Notes to Financial Statements.
--------------------------------------------------------------------------------
18
<PAGE>
Mid Cap Portfolio
--------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------
FOR THE YEAR ENDED
SEPTEMBER 30, 2000
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends ..................................................... $ 632,384
-----------
Total InvestmentIncome ........................................... 632,384
-----------
EXPENSES
Advisory Fees ................................................. 492,407
Administration and Services Fees .............................. 75,755
Professional Fees ............................................. 32,429
Trustees Fees ................................................. 3,949
Miscellaneous Expenses ........................................ 4,018
-----------
Total Expenses ................................................... 608,558
Less: Fee Waivers or Expense Reimbursements ...................... (155,158)
-----------
Net Expenses ..................................................... 453,400
-----------
NET INVESTMENT INCOME ............................................ 178,984
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net Realized Gain from Investment Transactions ................ 11,701,588
Net Change in Unrealized Appreciation/Depreciation on Investments 74,967,364
-----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS .................. 86,668,952
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS ....................... $86,847,936
===========
See Notes to Financial Statements.
--------------------------------------------------------------------------------
19
<PAGE>
Mid Cap Portfolio
--------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEARS ENDED SEPTEMBER 30,
2000 1999
--------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS
Net Investment Income ............................................... $ 178,984 $ 17,564
Net Realized Gain from Investment Transactions ...................... 11,701,588 8,027,612
Net Change in Unrealized Appreciation/Depreciation
on Investments .................................................... 74,967,364 1,426,127
------------ -----------
Net Increase in Net Assets from Operations ............................. 86,847,936 9,471,303
------------ -----------
CAPITAL TRANSACTIONS
Proceeds from Capital Invested ...................................... 405,848,130 10,983,175
Value of Capital Withdrawn .......................................... (52,593,612) (17,403,228)
------------ -----------
Net Increase (Decrease) in Net Assets from Capital
Transactions ........................................................ 353,254,518 (6,420,053)
------------ -----------
TOTAL INCREASE IN NET ASSETS ........................................... 440,102,454 3,051,250
NET ASSETS
Beginning of Year ................................................... 28,740,572 25,689,322
------------ -----------
End of Year ......................................................... $468,843,026 $28,740,572
============ ===========
</TABLE>
See Notes to Financial Statements.
--------------------------------------------------------------------------------
20
<PAGE>
Mid Cap Portfolio
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEARS ENDED SEPTEMBER 30,
2000 1999 1998 1997 1996
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SUPPLEMENTAL DATA AND RATIOS:
Net Assets, End of Year
(000s omitted) .............................. $468,843 $28,741 $25,689 $48,972 $68,385
Ratios to Average Net Assets:
Net Investment Income (Expenses
in Excess of Income) ..................... 0.23% 0.07% (0.05)% (0.12)% (0.01)%
Expenses After Waivers ...................... 0.60% 0.60% 0.60% 0.60% 0.60%
Expenses Before Waivers ..................... 0.79% 0.91% 0.86% 0.81% 0.77%
Portfolio Turnover Rate ....................... 146% 155% 145% 167% 271%
</TABLE>
See Notes to Financial Statements.
--------------------------------------------------------------------------------
21
<PAGE>
Mid Cap Portfolio
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
A. ORGANIZATION
The Capital Appreciation Portfolio (the "Portfolio") is registered under the
Investment Company Act of 1940 (the "Act"), as amended, as an open-end
management investment company. The Portfolio was organized on October 28, 1992,
as an unincorporated trust under the laws of New York and began operations on
March 9, 1993. The Declaration of Trust permits the Board of Trustees (the
"Trustees") to issue beneficial interests in the Portfolio.
B. VALUATION OF SECURITIES
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 by and under the
general supervision of the Trustees.
C. SECURITIES TRANSACTIONS AND INVESTMENT INCOME
Securities 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 accretion of discount on
investments. Expenses are recorded as incurred. Realized gains and losses from
securities transactions are recorded on the identified cost basis.
All of the net investment income and realized and unrealized gains and losses
from the 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. ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States 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
he Portfolio has entered into an Administration and Services Agreement with
Bankers Trust Company ("Bankers Trust"), an indirect wholly owned subsidiary of
Deutsche Bank AG. Under this agreement, Bankers Trust provides administrative
and custody services to the Portfolio. These services are provided 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, the Portfolio pays Bankers Trust a fee computed daily and paid
monthly at an annual rate of .65% of the Portfolio's average daily net assets.
Bankers Trust has contractually agreed to waive its fees and reimburse expenses
of the Portfolio through January 31, 2001, to the extent necessary, to limit all
expenses to .60% of the average daily net assets of the Portfolio.
The Portfolio may invest in Cash Management Institutional ("Cash Management"),
an affiliated open-end management investment company managed by Bankers Trust.
Cash Management is offered as a cash management option to the Portfolio and
other accounts managed by Bankers Trust. Distributions from Cash Management to
the Portfolio for the year ended September 30, 2000 amounted to $425,038 and is
included in dividend income.
The Portfolio is a participant with other affiliated entities in a revolving
credit facility in the amount of $200,000,000, which expires April 27, 2001. A
commitment fee on the average daily amount of the available commitment is
payable on a quarterly basis and apportioned among all participants based on net
assets. No amounts were drawn
--------------------------------------------------------------------------------
22
<PAGE>
Mid Cap Portfolio
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
down or outstanding for this fund under the credit facility for the year ended
September 30, 2000.
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, 2000 were
$4,976,803 and $6,550,122, respectively.
For federal income tax purposes, the tax basis of investments held at September
30, 2000, was $395,522,350. The aggregate gross unrealized appreciation for all
investments was $98,161,775 and the aggregate gross unrealized depreciation for
all investments was $18,335,995.
--------------------------------------------------------------------------------
23
<PAGE>
Mid Cap Portfolio
--------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Holders of Beneficial Interest of
Mid Cap Portfolio:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of portfolio 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 Mid Cap Portfolio (hereafter
referred to as the "Portfolio") at September 30, 2000, 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 accounting principles
generally accepted in the United States. 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 auditing standards
generally accepted in the United States, 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, 2000 by correspondence with the custodian and brokers, provide a reasonable
basis for our opinion.
PricewaterhouseCoopers LLP
Baltimore, Maryland
November 8, 2000
--------------------------------------------------------------------------------
24
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
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:
DEUTSCHE ASSET MANAGEMENT SERVICE CENTER
P.O. BOX 219210
KANSAS CITY, MO 64121-9210
or call our toll-free number: 1-800-730-1313
This report must be preceded or accompanied by a current prospectus for the
Fund.
Deutsche Asset Management is the marketing name for the asset management
activities of Deutsche Bank AG, Deutsche Fund Management, Inc., Bankers Trust
Company, DB Alex. Brown LLC, Deutsche Asset Management, Inc., and Deutsche Asset
Management Investment Services Limited.
Mid Cap -- Investment Class CUSIP #055922819
Mid Cap -- Institutional Class CUSIP #055922637
MIDCAPANN (9/00)
Distributed by:
ICC Distributors, Inc.
