o BT INVESTMENT FUNDS o
INTERMEDIATE TAX FREE FUND
ANNUAL REPORT
----------------
SEPTEMBER o 1998
<PAGE>
INTERMEDIATE TAX FREE FUND
Table of Contents
- --------------------------------------------------------------------------------
Letter to Shareholders 3
Intermediate Tax Free Fund
Statement of Assets and Liabilities 5
Statement of Operations 5
Statements of Changes in Net Assets 6
Financial Highlights 6
Notes to Financial Statements 7
Report of Independent Accountants 8
Tax Information 8
Intermediate Tax Free Portfolio
Statement of Net Assets 9
Statement of Operations 10
Statements of Changes in Net Assets 11
Financial Highlights 11
Notes to Financial Statements 12
Report of Independent Accountants 13
----------------
The Fund is not insured by the FDIC and is not a deposit
obligation of or guaranteed by Bankers Trust Company.
The Fund is subject to investment risks, including possible
loss of principal amount invested.
----------------
2
<PAGE>
INTERMEDIATE TAX FREE FUND
Letter to Shareholders
- --------------------------------------------------------------------------------
We are pleased to present you with this annual report for the Intermediate Tax
Free 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
Interest rates fell over the Fund's annual period, declining for several
reasons.
o The U.S. government generated a $70 billion budget surplus, eliminating the
deficit for the first time in almost 30 years.
o The crisis in Asian equity markets led to concerns about whether U.S. economic
growth would slow, whether inflation would stay benign, and whether
deflationary forces would be felt.
o Based on well-publicized financial troubles in key countries, such as Russia
and Japan, global economies seemed more interwoven than ever--and more
uncertain than ever.
o Anticipation was high that the Federal Reserve Board would have to ease its
official monetary policy.
In fact, the Federal Reserve Board did lower the fed funds rate by 25 basis
points on September 29th, bringing it to 5.25%.
Global economic turmoil created a flight to quality that benefited both U.S.
Treasuries and municipal bonds.
o Government bonds enjoyed the biggest rally, benefiting from both foreign
investors and domestic equity investors seeking relative stability. The yields
on intermediate Treasuries fell by approximately 1.70% over the twelve months
ended September 30, 1998.
o Municipal bonds rallied as well, though not quite to the same extent as
Treasuries, since international investors have no need for the tax-exempt
income these securities offer. Still, intermediate tax free bond yields fell
by about .40% over the fiscal year.
Intermediate tax free bonds stayed true to their historical pattern of being
less volatile than other fixed income sectors.
o While the lack of direct impact of the Asian crisis on municipal bonds meant
their yields fell less than those of Treasuries, it also meant that credit
quality spreads did not widen as they did within the corporate and
mortgage-backed fixed income sectors during the fiscal year. In fact, credit
spreads remained rather narrow within the municipal bond market.
o The heavy supply of municipal securities during this annual period also
impacted their less dramatic yield decline. After setting a new record high in
the calendar year 1997, municipal securities supply continued to soar into
1998, with year-to-date volume at $214 billion, up 37% over the same 9-month
period in 1997.
-- Low interest rates supported an ongoing rush to refinance outstanding
loans, as municipalities sought to take advantage of the opportunity to
lower their payments.
-- Municipalities, benefiting from a healthy domestic economy and bulging tax
revenue coffers, also created new issue volume, seeing the opportunity to
finance new projects at lower costs.
o Municipal securities' demand, for the year as a whole, was rather
lackluster. However, demand did pick up notably in the last quarter of the
fiscal year, as U.S. equity markets grew increasingly volatile.
INVESTMENT REVIEW
The Fund outperformed its category average, primarily because we moved from a
neutral to a somewhat longer duration position in the second half of the fiscal
year, given our outlook for low interest rates. On September 30, the Fund's
duration stood at 6.4 years and its average maturity at 8.25 years.
The slight underperformance to the Fund's benchmark can be attributed to our
more conservative credit posture. Such a posture means the Fund does not benefit
from narrow credit spreads, as seen in the municipal bond market during this
period. For example, New York City's uninsured municipal credit spread narrowed
significantly. However, the Fund did not own any New York City issues--the
single largest component of the Index. Thus, the Fund did not participate in the
outperformance of these issues upon such narrowing. Still, it is important to
reiterate that the Fund's prospectus mandates higher credit quality standards
than held by the benchmark, and we continue to believe that this is the more
prudent strategy over the long term. The Fund's average credit quality, as of
September 30, was AA2 as rated by Moody's.
<TABLE>
<CAPTION>
Periods ended September 30, 1998 Cumulative Total Returns Average Annual Total Returns
- -------------------------------------------------------------------------------------------------------------------------
Past 1 Past 3 Past 5 Since Past 1 Past 3 Past 5 Since
year years years inception year years years inception
- -------------------------------------------------------------------------------------------------------------------------
<S><C>
BT Investment Intermediate Tax Free Fund*
(inception 7/20/92) 7.71% 20.45% 29.43% 42.78% 7.71% 6.40% 5.29% 5.92%
- -------------------------------------------------------------------------------------------------------------------------
Lehman 7 Year Government Obligations Index** 8.01% 21.97% 33.76% 48.16% 8.01% 6.84% 5.99% 6.58%
- -------------------------------------------------------------------------------------------------------------------------
Lipper Intermediate Municipal Debt Average*** 7.04% 20.02% 29.73% 42.93% 7.04% 6.27% 5.34% 5.96%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
- -----------------
* 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.
** The index represents government obligation securities with maturities of 7
to 8 years. Indices are unmanaged, and investments cannot be made in an
index.
*** Lipper figures represent the average of the total returns reported by all of
the mutual funds designated by Lipper Analytical Services, Inc., as falling
into the respective categories indicated. These figures do not reflect sales
charges.
3
<PAGE>
INTERMEDIATE TAX FREE FUND
Letter to Shareholders
- --------------------------------------------------------------------------------
Diversification of Portfolio investments
By Sector as of September 30, 1998
(percentages are based on market value)
[PIE CHART APPEARS HERE -- PLOT POINTS BELOW]
Education 8% Turnpike/Highway Revenue 1%
Transportation 7% Power Revenue 1%
University Dorm Authority 6%
Revenue 5%
General
Water 1% Obligations 23%
Property & Airport Authority 1%
Development 7%
Miscellaneous 4%
Hospital
Revenue 3% Environmental
Control 11%
Building
Revenue 3%
Refunding Bonds 19%
The Fund benefited from two other strategies as well--our continued
concentration on purchases in high tax states and our ongoing focus on
non-callable bonds.
o The Fund remained overweighted in New York and California issues, which
performed well primarily due to lack of supply there. In addition, having
added Massachusetts and Vermont bonds to the Fund in the first half of the
fiscal year, we also bought some Connecticut bonds in the second half, as this
is another high tax specialty state.
o We went through the process in the first half of the fiscal year of selling
bonds whose calls may get in the way of performance and purchased attractively
priced non-callable bonds throughout the year, thereby improving the overall
call structure of the portfolio. As a result, for the twelve months, the Fund
benefited from its significant holdings in non-callable bonds, which tend to
outperform in a declining interest rate environment.
The Fund ended the annual period with 9% of its assets in cash, as compared to
approximately 13% at the end of September 1997.
MANAGER OUTLOOK
For the near term, we will likely maintain the Fund's slightly long to the Index
duration, as we anticipate that the Federal Reserve Board will cut interest
rates again. In fact, we believe the fixed income market is already discounting
further moves by the Fed. We further believe that economic growth will remain
slow but respectable within a 1%-2% GDP range and inflation low between 1.5%-2%.
With interest rates at historically low levels and a positive backdrop for the
bond market anticipated to continue, we will likely allow the Fund's duration to
drift to a more neutral duration position as we approach the new year. At the
same time, we will look for opportunities to shorten if the municipal market
rallies further.
We will, of course, continue monitoring economic conditions and how they affect
the financial markets, as we seek to produce a yield greater than a tax free
money market fund with lower risk to principal than a longer term or lower
credit quality tax free bond fund.
/s/ Gary Pollack
_________________________
Gary Pollack
Portfolio Manager of the
Intermediate Tax Free Portfolio
September 30, 1998
Performance Comparison
- --------------------------------------------------------------------------------
Comparison of Change in Value of a $10,000 Investment in the Intermediate Tax
Free Fund and the Lehman 7-Year G.O. Bond Index since July 31, 1992.
---------------------------------------
Total Return for the Year
Ended September 30, 1998
One Year Five Year Since 7/20/92*
7.71% 5.29%** 5.92%**
* The Fund's inception date.
** Annualized.
---------------------------------------
Investment return and principal value may fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
[GRAPH APPEARS HERE -- PLOT POINTS BELOW]
Intermediate Lehman 7-Year
Tax Free Fund - $14,278 G.O. Bond Index - $14,816
Jul-92 $10,000 $10,000
Sep-92 9,937 9,972
Dec-92 10,088 10,140
Mar-93 10,377 10,463
Jun-93 10,656 10,761
Sep-93 10,960 11,076
Dec-93 11,089 11,227
Mar-94 10,667 10,741
Jun-94 10,726 10,889
Sep-94 10,787 10,973
Dec-94 10,667 10,864
Mar-95 11,255 11,452
Jun-95 11,533 11,760
Sep-95 11,779 12,147
Dec-95 12,130 12,446
Mar-96 12,018 12,419
Jun-96 12,084 12,456
Sep-96 12,261 12,691
Dec-96 12,535 13,017
Mar-97 12,499 12,997
Jun-97 12,855 13,359
Sep-97 13,172 13,715
Dec-97 13,555 14,016
Mar-98 13,658 14,176
Jun-98 13,831 14,337
Sep-98 14,278 14,816
Past performance is not indicative of future performance.
4
<PAGE>
INTERMEDIATE TAX FREE FUND
Statement of Assets and Liabilities September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S><C>
Assets
Investment in Intermediate Tax Free Portfolio, at Value $23,911,552
Receivable for Shares of Beneficial Interest Sold 213,654
Prepaid Expenses and Other 5,458
-------------
Total Assets 24,130,664
-------------
Liabilities
Due to Bankers Trust 3,810
Dividends Payable 36,955
Accrued Expenses and Other 17,913
-------------
Total Liabilities 58,678
-------------
Net Assets $24,071,986
=============
Composition of Net Assets
Paid-in Capital $22,679,081
Undistributed Net Realized Gain from Investment Transactions 144,296
Net Unrealized Appreciation on Investments 1,248,609
-------------
Net Assets $24,071,986
=============
Net Asset Value, Offering and Redemption Price Per Share
(net assets divided by shares outstanding) $ 11.02
=============
Shares Outstanding ($0.001 par value per share, unlimited number
of shares of beneficial interest authorized) 2,184,335
=============
</TABLE>
Statement of Operations For the year ended September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S><C>
Investment Income
Income Allocated from Intermediate Tax Free Portfolio, net $ 938,744
-------------
Expenses
Administration and Services Fees 86,961
Printing and Shareholder Reports 13,592
Professional Fees 13,120
Registration Fees 11,320
Trustees Fees 3,053
Miscellaneous 5,861
-------------
Total Expenses 133,907
Less Expenses Absorbed by Bankers Trust (46,946)
-------------
Net Expenses 86,961
-------------
Net Investment Income 851,783
-------------
Realized and Unrealized Gain on Investment
Net Realized Gain from Investment Transactions 144,761
Net Change in Unrealized Appreciation/Depreciation on Investment 630,290
-------------
Net Realized and Unrealized Gain on Investment 775,051
-------------
Net Increase in Net Assets from Operations $1,626,834
=============
</TABLE>
See Notes to Financial Statements on Page 7
5
<PAGE>
INTERMEDIATE TAX FREE FUND
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the For the
year ended year ended
September 30, 1998 September 30, 1997
------------------ ------------------
<S><C>
Increase (Decrease) in Net Assets from:
Operations
Net Investment Income $ 851,783 $ 906,480
Net Realized Gain from Investment Transactions 144,761 692,946
Net Change in Unrealized Appreciation/Depreciation on Investment 630,290 (90,804)
------------ -------------
Net Increase in Net Assets from Operations 1,626,834 1,508,622
------------ -------------
Distributions to Shareholders
Net Investment Income (851,783) (906,480)
Net Realized Gain from Investment Transactions (25,237) --
------------ -------------
Total Distributions toShareholders (877,020) (906,480)
------------ -------------
Capital Transactions in Shares of Beneficial Interest
Proceeds from Sales of Shares 10,929,947 7,441,482
Dividend Reinvestments 452,871 633,740
Cost of Shares Redeemed (6,793,047) (11,952,520)
------------ -------------
Net Increase (Decrease) from Capital Transactions in Shares of Beneficial Interest 4,589,771 (3,877,298)
------------ -------------
Total Increase (Decrease) in Net Assets 5,339,585 (3,275,156)
------------ -------------
Net Assets
Beginning of Year 18,732,401 22,007,557
------------ -------------
End of Year $24,071,986 $ 18,732,401
============ =============
</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 Intermediate Tax Free Fund.
<TABLE>
<CAPTION>
For the years ended For the years
ended September 30, For the period December 31,
------------------- January 1, 1996 to ---------------
1998 1997 September 30, 1996** 1995 1994
------ ------- -------------------- ------ ------
<S><C>
Per Share Operating Performance:
Net Asset Value, Beginning of Period $10.65 $10.34 $10.56 $ 9.72 $10.54
------ ------ ------ ------ ------
Income fromInvestment Operations
Net Investment Income 0.42 0.44 0.33 0.47 0.42
Net Realized and Unrealized Gain (Loss) on Investments 0.38 0.31 (0.22) 0.84 (0.82)
------ ------ ------ ------ ------
Total Income (Loss) from Investment Operations 0.80 0.75 0.11 1.31 (0.40)
------ ------ ------ ------ ------
Distributions to Shareholders
Net Investment Income (0.42) (0.44) (0.33) (0.47) (0.42)
Net Realized Gains (0.01) -- -- -- --
------ ------ ------ ------ ------
Total Distributions (0.43) (0.44) (0.33) (0.47) (0.42)
------ ------ ------ ------ ------
Net Asset Value, End of Period $11.02 $10.65 $10.34 $10.56 $ 9.72
====== ====== ====== ====== ======
Total Investment Return 7.71% 7.43% 4.09% 13.71% (3.81)%
Supplemental Data and Ratios:
Net Assets, End of Period (000s omitted) $24,072 $18,732 $22,008 $22,213 $25,303
Ratios to Average Net Assets:
Net Investment Income 3.91% 4.23% 4.25%* 4.58% 4.20%
Expenses, Including Expenses of the
Intermediate Tax Free Portfolio 0.85% 0.85% 0.85%* 0.85% 0.85%
Decrease Reflected in Above Expense
Ratio Due to Absorption of Expenses by
Bankers Trust 0.37% 0.30% 0.38%* 0.28% 0.36%
</TABLE>
- ---------
* Annualized
** The Board of Trustees approved the change of the fiscal year end from
December 31 to September 30.
See Notes to Financial Statements on Page 7
6
<PAGE>
INTERMEDIATE TAX FREE FUND
Notes to Financial Statements
- --------------------------------------------------------------------------------
Note 1--Organization and Significant Accounting Policies
A. Organization
BT Investment Funds (the "Trust") is registered under the Investment Company Act
of 1940 (the "Act"), as amended, as an open-end management investment company.
The Trust was organized on July 21, 1986, as a business trust under the laws of
the Commonwealth of Massachusetts. The Intermediate Tax Free 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 July 20, 1992.
The Fund invests substantially all of its assets in the Intermediate Tax Free
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 such investment in the Portfolio reflects the Fund's proportionate interest
in the net assets of the Portfolio. At September 30, 1998, the Fund's investment
was approximately 100% of the Portfolio.
The financial statements of the Portfolio, including the Statement of Net
Assets, are contained elsewhere in this report.
B. Investment Valuation
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 and should be read in conjunction with these financial statements.
C. Investment Income
The Fund's income, net of expenses, is earned 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 dividends daily and distribute monthly to
shareholders from net investment income, if any. Dividends and distributions
payable to shareholders are recorded by the Fund on the ex-dividend date.
Distributions of net realized short-term and long-term capital gains, if any,
earned by the Fund will 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 differences in the characterization and allocation of certain income
and capital gains determined annually in accordance with federal tax regulations
which may differ from generally accepted accounting principles.
F. Other
The Trust accounts separately for the assets, liabilities, and operations of the
Fund. Expenses directly attributable to the Fund are charged to that Fund, while
expenses which are attributable to all of the Trust's funds are allocated among
them. 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 Administration and Services
Agreement, Bankers Trust provides administrative, custody, transfer agency and
shareholder services to the Fund in return for a fee computed daily and paid
monthly at an annual rate of .40% 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 .40% of
the average daily net assets of the Fund, excluding expenses of the Portfolio
and .85% of the average daily net assets of the Fund, including expenses of the
Portfolio.
The Trust has entered into a distribution agreement with ICCDistributors, Inc.
("ICC") under which ICC will serve as distributor for shares sold on behalf of
the Fund.
The Trust is a participant with other affiliated entities in a revolving credit
facility ("the revolver") 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 quarterly commitment fee of .07% per annum on the
average daily amount of the available commitment is payable on a quarterly basis
and is 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 year ended September 30, 1998.
Note 3--Shares of Beneficial Interest
At September 30, 1998, there were an unlimited number of shares of beneficial
interest authorized. Transactions in shares of beneficial interest were as
follows:
<TABLE>
<CAPTION>
For the For the
year ended year ended
September 30, 1998 September 30, 1997
----------------------- -------------------------
Shares Amount Shares Amount
--------- ----------- --------- ------------
<S><C>
Sold 1,014,118 $10,929,947 714,509 $ 7,441,482
Reinvested 41,978 452,871 54,979 633,740
Redeemed (630,927) (6,793,047) (1,138,076) (11,952,520)
--------- ----------- ---------- ------------
Net Increase (Decrease) 425,169 $ 4,589,771 (368,588) $ (3,877,298)
========= =========== ========== ============
</TABLE>
7
<PAGE>
INTERMEDIATE TAX FREE FUND
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Trustees of BT Investment Funds and Shareholders of
Intermediate Tax Free Fund:
In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
the Intermediate Tax Free Fund (one of the funds comprising BTInvestment Funds,
hereafter referred to as the "Fund") at September 30, 1998, and the results of
its operations, the changes in its net assets and the financial highlights for
each of the fiscal periods presented, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at September 30, 1998 by correspondence with the
transfer agent, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Baltimore, Maryland
November 6, 1998
Tax Information (Unaudited) For the Year Ended September 30, 1998
- --------------------------------------------------------------------------------
The Fund paid long term capital gains during the year ended 9/30/98 in the
amount of $25,237. All long term capital gain distributions are taxed at the 20%
capital gains rate.
In addition, the Fund's ordinary distributions are 100% tax exempt for federal
income tax purposes.
8
<PAGE>
INTERMEDIATE TAX FREE PORTFOLIO
Statement of Net Assets September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Description Value
------ ----------- -----
<S><C>
LONG-TERM MUNICIPAL BONDS - 90.39%
Arizona - 1.99%
$ 440,000 Arizona State Transportation Board
Excise Tax, 5.60%, 7/01/03 $ 474,808
----------
California - 8.86%
500,000 California State, 5.75%, 11/01/11 574,395
920,000 California State Department of Public Works,
5.00%, 9/01/09 1,001,144
500,000 San Diego County, California Regulatory
Transportation Commission Sales Tax
Revenue - Series A, 5.00%, 4/02/08 542,110
----------
2,117,649
----------
Connecticut - 11.30%
500,000 Connecticut State, Series A,
6.25%, 5/15/06 576,650
1,000,000 Connecticut State Special Tax Obligations,
5.50%, 10/01/10 1,119,070
500,000 Connecticut State Special Tax Obligations,
5.90%, 9/01/05 560,600
415,000 University of Connecticut,
5.00%, 6/01/09 445,693
----------
2,702,013
----------
Delaware - 2.36%
520,000 Delaware Transportation Authority,
6.10%, 7/01/02 560,763
----------
Florida - 2.47%
50,000 Dade County, Florida Aviation Authority,
5.40%, 10/01/07 55,045
500,000 Florida State Board of Education,
5.00%, 6/01/09 536,535
----------
591,580
----------
Illinois - 1.95%
440,000 Chicago, Illinois, G.O. (FGICInsured),
5.00%, 1/01/07 465,723
----------
Indiana - 3.66%
300,000 Indiana University Revenue,
6.60%, 8/01/01 322,287
500,000 Purdue University of Indiana University
Revenue, Series N, 5.50%, 7/01/12 553,805
----------
876,092
----------
Maine - 4.35%
445,000 Maine Municipal Bond, Series A,
5.50%, 11/01/10 496,019
500,000 Maine Municipal Bond, Series B,
(MBIA Insured), 5.375%, 11/01/05 545,100
----------
1,041,119
----------
Maryland - 1.35%
300,000 Baltimore County, Maryland Refunding -
Pension Funding, 5.50%, 8/01/09 323,553
----------
Massachusetts - 3.40%
775,000 Massachusetts State Consumer Loan,
Series A, 5.00%, 6/01/14 813,285
----------
Michigan - 3.15%
$ 500,000 Michigan State Building Authority,
(AMBAC Insured), 6.00%, 10/01/02 $ 541,165
200,000 Michigan State Housing Development
Authority, 6.30%, 12/01/03 212,946
----------
754,111
----------
Nebraska - 1.37%
300,000 Nebraska Public Power District Revenue,
5.70%, 1/01/05 327,219
----------
Nevada - 2.26%
500,000 Clark County, Nevada Highway Improvement
Revenue, (AMBAC Insured),
5.70%, 7/01/03 540,355
----------
New Jersey - 1.01%
225,000 New Jersey State Turnpike Authority, 6.00%,
1/01/05 241,785
----------
New York - 24.74%
700,000 New York City, New York, GO, Series E,
6.00%, 8/01/07 795,207
500,000 New York State Dormitory Authority Revenue
Consolidated City University System,
(FGIC Insured), 5.75%, 7/01/13 569,430
500,000 New York State Dormitory Authority Revenue
New York University, (MBIA Insured),
Series A, 6.00%, 7/01/06 566,950
300,000 New York State Dormitory Authority Revenue
State University Educational Facility,
5.00%, 5/15/10 314,481
400,000 New York State Dormitory Authority Revenue
State University Educational Facility,
(AMBAC Insured), Series B, 5.25%,
5/15/10 436,564
500,000 New York State Environment Facilities Corp.,
5.75%, 6/15/10 567,345
500,000 New York State Environmental Facilities Corp.,
Pollution Control Revenue State Water
Revolving Fund, Series C, 5.05%, 12/15/10 532,720
500,000 New York State Local Government
Assistance Corp., Series E, 5.25%, 4/01/16 535,350
1,000,000 New York City Municipal Water Finance
Authority, 5.00%, 6/15/2008 1,059,500
500,000 Oyster Bay New York, 5.00%, 2/01/09 535,615
----------
5,913,162
----------
North Carolina - 2.94%
650,000 North Carolina State, 5.10%, 6/01/07 703,885
----------
Tennessee - 1.92%
10,000 Shelby County, Tennessee Public
Improvement, Series B, 5.25%, 11/01/06 10,881
405,000 Shelby County, Tennessee Public
Improvement, Series B, 5.50%, 8/01/07 449,344
----------
460,225
----------
Texas - 5.86%
285,000 Texas Water Resources Finance Authority
Revenue, 7.30%, 8/15/04 292,715
500,000 University of Texas, Series A,
6.50%, 8/15/01 538,715
500,000 Texas State, Series A, 6.00%, 10/01/06 568,825
----------
1,400,255
----------
</TABLE>
See Notes to Financial Statements on Page 12
9
<PAGE>
INTERMEDIATE TAX FREE PORTFOLIO
Statement of Net Assets September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Description Value
------ ----------- -----
<S><C>
Vermont - 2.74%
$615,000 Vermont State, Series B, 5.00%, 1/15/10 $ 656,273
-----------
Virginia - 1.84%
400,000 Arlington County, Virginia, 5.50%, 8/01/05 440,696
-----------
Wisconsin - 0.87%
200,000 Wisconsin State Transportation,
6.00%, 7/01/00 207,314
-----------
Total Long-Term Municipal Bonds (Cost $20,362,835) 21,611,865
-----------
FLOATING RATE DEMAND NOTES - 8.36%
Arizona - 1.25%
300,000 Pinal County, Arizona Industrial Development
Authority Pollution Control Revenue,
4.10%, 12/01/09 300,000
-----------
Mississippi - 2.51%
500,000 Jackson County, Mississippi Pollution
Control Revenue, Chevron U.S.A. Inc.,
4.00%, 12/01/16 500,000
100,000 Perry County Mississippi Pollution Control
Revenue, 4.05%, 3/01/02 100,000
-----------
600,000
-----------
Montana - 0.42%
100,000 Forsyth, Montana Pollution Control
Revenue, 4.20%, 1/01/18 100,000
-----------
New York - 1.25%
100,000 New York, New York, GO, 4.00%, 8/01/21 100,000
100,000 New York, New York, GO, 4.10%, 8/15/21 100,000
100,000 New York, New York, GO, 4.25%, 10/01/21 100,000
-----------
300,000
-----------
Pennsylvania - 0.42%
$100,000 Delaware County, Pennsylvania Industrial
Development Authority Pollution Control
Revenue, 4.05%, 8/01/16 $ 100,000
-----------
Texas - 2.51%
600,000 Angelina and Neches River Authority,
Texas Industrial Corporation,
Solid Waste Revenue, 4.10%, 5/01/14 600,000
-----------
Total Floating Rate Demand Notes (Cost $2,000,000) 2,000,000
-----------
Total Investments (Cost $22,362,835) 98.75% $23,611,865
Other Assets Less Liabilities 1.25% 299,843
------- -----------
Net Assets 100.00% $23,911,708
======= ===========
</TABLE>
The following abbreviations are used in portfolio descriptions:
AMBAC -- American Municipal Bond Assurance Corporation
FGIC -- Financial Guaranty Insurance Corporation
GO -- General Obligation
MBIA -- Municipal Bond Investors Assurance
Statement of Operations For the year ended September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S><C>
Investment Income
Interest $1,036,773
-----------
Expenses
Advisory Fees 87,127
Administration and Services Fees 10,895
Professional Fees 31,504
Trustees Fees 2,558
-----------
Total Expenses 132,084
Less Expenses Absorbed by Bankers Trust (34,062)
-----------
Net Expenses 98,022
-----------
Net Investment Income 938,751
-----------
Realized and Unrealized Gain on Investments
Net Realized Gain from Investment Transactions 144,762
Net Change in Unrealized Appreciation/Depreciation on Investments 630,294
-----------
Net Realized and Unrealized Gain on Investments 775,056
-----------
Net Increase in Net Assets from Operations $1,713,807
===========
</TABLE>
See Notes to Financial Statements on Page 12
10
<PAGE>
INTERMEDIATE TAX FREE PORTFOLIO
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the For the
year ended year ended
September 30, 1998 September 30, 1997
------------------ ------------------
<S><C>
Increase (Decrease) in Net Assets from:
Operations
Net Investment Income $ 938,751 $ 992,177
Net Realized Gain from Investment Transactions 144,762 692,950
Net Change in Unrealized Appreciation/Depreciation on Investments 630,294 (90,805)
------------ -------------
Net Increase in Net Assets from Operations 1,713,807 1,594,322
------------ -------------
Capital Transactions
Proceeds from Capital Invested 11,556,348 7,698,778
Value of Capital Withdrawn (7,741,467) (12,929,481)
------------ -------------
Net Increase (Decrease) in Net Assets from Capital Transactions 3,814,881 (5,230,703)
------------ -------------
Total Increase (Decrease) in Net Assets 5,528,688 (3,636,381)
Net Assets
Beginning of Year 18,383,020 22,019,401
------------ -------------
End of Year $23,911,708 $ 18,383,020
============ =============
</TABLE>
Financial Highlights
- --------------------------------------------------------------------------------
Contained below are selected ratios to average net assets and other supplemental
data for the periods indicated for the Intermediate Tax Free Portfolio.
<TABLE>
<CAPTION>
For the year ended For the years ended
September 30, For the period December 31,
------------------ January 1, 1996 to -------------------
1998 1997 September 30, 1996* 1995 1994
------- ------- ------------------- ------- -------
<S><C>
Supplemental Data and Ratios:
Net Assets, End of Period (000s omitted) $23,912 $18,383 $22,019 $22,253 $25,326
Ratios to Average Net Assets:
Net Investment Income 4.30% 4.62% 4.64%** 4.97% 4.58%
Expenses 0.45% 0.45% 0.45%** 0.45% 0.45%
Decrease Reflected in Above Expense
Ratio Due to Absorption of Expenses by
Bankers Trust 0.16% 0.11% 0.14%** 0.08% 0.14%
Portfolio Turnover Rate 64% 171% 130% 95% 118%
</TABLE>
- ---------
* The Board of Trustees approved the change of the fiscal year end from
December 31 to September 30.
** Annualized.
See Notes to Financial Statements on Page 12
11
<PAGE>
INTERMEDIATE TAX FREE PORTFOLIO
Notes to Financial Statements
- --------------------------------------------------------------------------------
Note 1--Organization and Significant Accounting Policies
A. Organization
The Intermediate Tax Free 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 December 11, 1991
as an unincorporated trust under the laws of New York and commenced operations
on July 20, 1992. 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 are carried at fair market value as determined by an
independent pricing service at the end of each business day. 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. Securities for which quotations are not available are
stated 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. Interest income
is recorded on the accrual basis and includes amortization of premium and
discount on investments. Expenses are recorded as incurred. Realized gains and
losses from securities transactions are recorded on the identified cost basis.
All of the net investment income and realized and unrealized gains and losses
from the 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 Adviser, 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 to be a partnership under the Internal Revenue Code.
Therefore, no federal income tax provision is necessary.
F. Other
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts in the financial statements. Actual results could
differ from those estimates.
Note 2--Fees and Transactions with Affiliates
The Portfolio has entered into an Administration and Services Agreement with
Bankers Trust Company ("Bankers Trust"). Under this Administration and Services
Agreement, Bankers Trust provides administrative, custody, transfer agency and
shareholder services to the Portfolio in return for a fee computed daily and
paid monthly at an annual rate of .05% of the Portfolio's average daily net
assets. Amounts owed under the Administration and Services Agreement amounted to
$722, net of reimbursable expenses of $236 at September 30, 1998.
The Portfolio has entered into an Advisory Agreement with Bankers Trust. Under
this Advisory 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 .40% of the
Portfolio's average daily net assets. Accrued advisory fees amounted to $5,755,
net of reimbursable expenses of $1,910 at September 30, 1998.
Bankers Trust has voluntarily undertaken to waive its fees and reimburse
expenses of the Portfolio to the extent necessary, to limit all expenses to .45%
of the average daily net assets of the Portfolio.
The Portfolio is a participant with other affiliated entities in a revolving
credit facility ("the revolver") 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 quarterly commitment fee of .07% per annum on
the average daily amount of the available commitment is payable on a quarterly
basis and is 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 year ended September 30, 1998.
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 September 30, 1998 were $17,069,117
and $12,277,974, respectively.
For federal income tax purposes, the tax basis of investments held at September
30, 1998 was $22,362,835.
The aggregate gross unrealized appreciation for all investments was $1,249,030,
and the aggregate gross unrealized depreciation for all investments was $0.
Note 4--Net Assets
On September 30, 1998, net assets consisted of:
Paid in Capital $22,662,678
Net Unrealized Appreciation on Investments 1,249,030
-----------
$23,911,708
===========
12
<PAGE>
INTERMEDIATE TAX FREE PORTFOLIO
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Trustees and Holders of Beneficial Interest of the Intermediate
Tax Free Portfolio:
In our opinion, the accompanying statement of net assets 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
Intermediate Tax Free Portfolio (hereafter referred to as the "Portfolio") at
September 30, 1998, and the results of its operations, the changes in its net
assets and the financial highlights for each of the fiscal periods presented, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Portfolio's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
September 30, 1998 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Baltimore, Maryland
November 6, 1998
13
<PAGE>
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<PAGE>
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<PAGE>
BT INVESTMENT FUNDS
INTERMEDIATE TAX FREE FUND
Investment Advisor and Administrator of the Portfolio
BANKERS TRUST COMPANY
130 Liberty Street
(One Bankers Trust Plaza)
New York, NY 10006
Distributor
ICC DISTRIBUTORS, INC.
P.O. Box 7558
Portland, ME 04112-9892
Custodian and Transfer Agent
BANKERS TRUST COMPANY
130 Liberty Street
(One Bankers Trust Plaza)
New York, NY 10006
Independent Accountants
PRICEWATERHOUSECOOPERS
250 West Pratt Street
Baltimore, MD 21201
Counsel
WILLKIE FARR & GALLAGHER
787 7th Avenue
New York, NY 10019
-----------------
For information on how to invest, shareholder account information
and current price and yield information, please contact your
relationship manager or the BT Mutual Fund Service Center at
(800) 730-1313. This report must be preceded or accompanied by a
current prospectus for the Funds.
-----------------
STA467200 (9/98)
CUSIP #055922801
