o BT INVESTMENT FUNDS o
INTERMEDIATE TAX FREE FUND
SEMI-ANNUAL REPORT
------------------
MARCH 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
Intermediate Tax Free Portfolio
Statement of Net Assets 8
Statement of Operations 9
Statements of Changes in Net Assets 10
Financial Highlights 10
Notes to Financial Statements 11
-------------------------
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 semi-annual report for the Intermediate
Tax Free Fund, providing a review of the market, 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.
The Investment Intermediate Tax Free Fund (the "Fund") returned 3.03%* for the
six months ending March 31, 1998, as compared to 3.36% for the Lehman 7 Year
Government Obligations Index** and 3.00% for the Lipper Intermediate Municipal
Debt Average***. Since its inception on July 20, 1992, the Fund has delivered a
total return of 36.58% cumulatively, or 5.63% annualized as of March 31, 1998.
The Fund returned 8.58% for the year ended March 31, 1998. For the 5-year period
ended March 31, 1998, the Fund's annualized return was 5.51%.
MARKET ACTIVITY
During the Fund's semi-annual period, interest rates continued the declining
trend begun in the previous six months. Interest rates declined for several
reasons. First, the Asian currency crisis of the fourth calendar quarter helped
strengthen both the dollar and dollar-denominated securities. It also created a
flight to quality that benefited both U.S. Treasuries and municipal bonds. The
Far East turmoil further raised the question among investors as to whether U.S.
economic growth would slow. Evidence of a slower economic growth environment and
a continued absence of inflation were actually major factors in the Federal
Reserve Board's decision not to officially change monetary policy. Finally, the
positive Federal budget outlook contributed to declining interest rates, as the
U.S. now has the smallest deficit in thirty years, with signs of a surplus
coming onto the books later in 1998.
- -----------------------------------------
Objective
Seeks high current income exempt from
federal taxes with moderate risk to capi-
tal+.
- -----------------------------------------
Intermediate tax free bond yields fell by about .20% over the six months, and
intermediate government bonds fell by about .40%. Interestingly, virtually the
entire yield descent occurred in the last calendar quarter of 1997. As it became
clear that the Asian problems would have limited effect on the U.S. and
investors grew more confident with the co-existence of low inflation, reasonably
good GDP growth, low unemployment, and low interest rates, bond yields moved
within a fairly narrow range in the first calendar quarter of 1998. Staying true
to their historical pattern of being less volatile, intermediate municipal
yields fell less than intermediate Treasuries. The heavy supply of municipal
securities during this semi-annual period also impacted their less dramatic
yield decline.
- ------------------------------------------
Investment Instruments
Diversified range of high grade intermedi-
ate term securities issued by states and
their political subdivisions, authorities,
agencies and instrumentalities, providing
income exempt from federal income taxes.
The weighted average maturity of securi-
ties will range from three to eight years.
- ------------------------------------------
In fact, municipal securities supply set a new record high in the calendar year
1997--up approximately 40% over the previous year, a trend that continued into
the first quarter of 1998. Low interest rates sparked a rush to refinance
outstanding loans, as municipalities sought to take advantage of the opportunity
to lower their payments. Municipalities, benefiting from a healthy economy and
bulging tax revenue coffers, also created new issue volume, seeing the
opportunity to finance new projects at lower costs. Based on these comparatively
strong financial positions, upgrades continued to outnumber downgrades.
Particularly notable was Moody's upgrade of New York City, as New York remains
the single largest issuer of municipal securities. Demand, on the whole, was
lackluster.
INVESTMENT REVIEW
The Fund slightly outperformed its category average. The underperformance to its
benchmark can be attributed to our more conservative credit posture.
Specifically, the Fund did not own any New York City issues--the single largest
component of the Index, and thus it did not participate in the outperformance of
these issues upon their upgrade. 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.
Since interest rates remained low and yields moved only within a narrow range,
we maintained a relatively neutral duration positioning during the Fund's
semi-annual period. On March 31, the Fund's duration stood at 6.05 years.
We continued to concentrate the Fund's purchases in high tax states.
Specifically, the Fund's exposure to New York-issued securities equaled
approximately 28% of total net assets as of March 31, 1998. We added to the
Fund's holdings in California, which accounted for approximately 9% of the
Fund's total assets at the end of the period, and we also added Massachusetts
and Vermont bonds to the Fund. We bought and sold some Florida bonds, based
simply on the technicals of supply and demand.
Maintaining our focus on high quality issues, more than three-fourths of the
Fund's holdings are, as of March 31, rated AAA. To this same end, we continued
to sell bonds whose calls may get in the way of performance, especially should
interest rates continue to decline, and to purchase noncallable bonds, thereby
improving the overall call structure of the portfolio. The Fund ended the
semi-annual period with 12% of its assets in cash, approximately equal to the
allocation held at the end of September 1997.
MANAGER OUTLOOK
For the near term, we anticipate maintaining the Fund's neutral to the Index
duration, as we believe that interest rates will likely remain low and yields
within a narrow band. We anticipate that the Federal Reserve Board will keep
monetary policy unchanged, that economic growth will slow beginning in the
second calendar quarter of 1998, and that inflation will remain low.
- ------------------
* Performance quoted represents past performance and is not a guarantee of
future results. Investment return and principal value will fluctuate, so
that an investor's shares, when redeemed, may be worth more or less than
their original cost.
** Indexes 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.
+ Income may be subject to the federal alternative minimum tax and state and
local taxes.
3
<PAGE>
Intermediate Tax Free Fund
Letter to Shareholders
Diversification of Portfolio Investments
By Sector as of March 31, 1998
(percentages are based on market value)
[PIE CHART APPEARS HERE]
Turnpike/Highway
Revenue 4%
Sewer Revenue Bonds 5%
Power Revenue 4%
Transportation 15% Dorm Authority 3%
University General
Revenue 6% Obligations 19%
Water 3%
Property &
Development 7% Airport Authority 1%
Hospital Revenue 3% Miscellaneous 5%
Electric Revenue 1%
Environmental Control 11%
Building Revenue 3%
Refunding Bonds 8% Public Improvements 2%
Later in the year, however, we believe tight labor markets could push wage rates
higher, putting pressure on profit margins and forcing prices higher. Contrary
to popular opinion, we believe that the well-publicized "new economic paradigm"
of steady growth/low inflation may not prove to be a long-term phenomenon after
all. As inflation picks up, interest rates may rise. Should interest rates start
to move back up again in the second half of 1998, we would likely shorten the
Fund's duration and take a more defensive position in response.
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.
We value your ongoing support of the Intermediate Tax Free Fund and look forward
to continuing to serve your investment needs in the years ahead.
/s/ Gary Pollack
________________
Gary Pollack
Portfolio Manager of the
Intermediate Tax Free Portfolio
March 31, 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 Period
Ended March 31, 1998
Six Months Since 7/20/92*
3.03% 5.63%**
* 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 -- SEE PLOT POINTS BELOW]
Intermediate Tax Lehman 7-Year
Free Fund - $13,658 G.O. Bond Index - $14,176
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
Past performance is not indicative of future performance.
4
<PAGE>
Intermediate Tax Free Fund
Statement of Assets and Liabilities March 31, 1998 (unaudited)
<TABLE>
<S><C>
Assets
Investment in Intermediate Tax Free Portfolio, at Value $24,160,930
Prepaid Expenses and Other 13,987
-----------
Total Assets 24,174,917
-----------
Liabilities
Due to Bankers Trust 4,298
Payable for Shares of Beneficial Interest Redeemed 22,000
Dividends Payable 30,358
Accrued Expenses and Other 12,651
-----------
Total Liabilities 69,307
-----------
Net Assets $24,105,610
===========
Composition of Net Assets
Paid-in Capital $23,262,933
Undistributed Net Investment Income (71)
Undistributed Net Realized Gain from Investment Transactions 134,652
Net Unrealized Appreciation on Investments 708,096
-----------
Net Assets $24,105,610
===========
Net Asset Value, Offering and Redemption Price Per Share (net assets divided by shares outstanding) $ 10.76
===========
Shares Outstanding ($0.001 par value per share, unlimited number of shares of beneficial interest authorized) 2,239,510
===========
</TABLE>
Statement of Operations For the six months ended March 31, 1998 (unaudited)
<TABLE>
<S><C>
Investment Income
Income Allocated from Intermediate Tax Free Portfolio, net $ 434,313
-----------
Expenses
Administration and Services Fees 40,089
Printing and Shareholder Reports 6,743
Registration Fees 3,610
Professional Fees 4,157
Trustees Fees 1,367
Miscellaneous 1,790
-----------
Total Expenses 57,756
Less Expenses Absorbed by Bankers Trust (17,667)
-----------
Net Expenses 40,089
-----------
Net Investment Income 394,224
-----------
Realized and Unrealized Gain on Investment
Net Realized Gain from Investment Transactions 109,880
Net Change in Unrealized Appreciation/Depreciation on Investment 89,777
-----------
Net Realized and Unrealized Gain on Investment 199,657
-----------
Net Increase in Net Assets from Operations $ 593,881
===========
</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
six months ended year ended
March 31, 1998+ September 30, 1997
---------------- ------------------
<S><C>
Increase (Decrease) in Net Assets from:
Operations
Net Investment Income $ 394,224 $ 906,480
Net Realized Gain from Investment Transactions 109,880 692,946
Net Change in Unrealized Appreciation/Depreciation on Investment 89,777 (90,804)
----------- ------------
Net Increase in Net Assets from Operations 593,881 1,508,622
----------- ------------
Distributions to Shareholders
Net Investment Income (394,295) (906,480)
----------- ------------
Capital Transactions in Shares of Beneficial Interest
Proceeds from Sales of Shares 8,180,695 7,441,482
Dividend Reinvestments 226,841 633,740
Cost of Shares Redeemed (3,233,913) (11,952,520)
----------- ------------
Net Increase (Decrease) from Capital Transactions in Shares of Beneficial Interest 5,173,623 (3,877,298)
----------- ------------
Total Increase (Decrease) in Net Assets 5,373,209 (3,275,156)
----------- ------------
Net Assets
Beginning of Period 18,732,401 22,007,557
----------- ------------
End of Period $24,105,610 $ 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 For the For the period
six months ended year ended January 1, 1996 to
March 31, 1998+ September 30, 1997 September 30, 1996
---------------- ------------------ ------------------
<S><C>
Per Share Operating Performance:
Net Asset Value, Beginning of Period $10.65 $10.34 $10.56
Income fromInvestment Operations
Net Investment Income 0.21 0.44 0.33
Net Realized and Unrealized Gain (Loss) on Investments 0.11 0.31 (0.22)
Total Income (Loss) from Investment Operations 0.32 0.75 1.11
Distributions to Shareholders
Net Investment Income (0.21) (0.44) (0.33)
Net Realized Gain from Investment Transactions -- -- --
Total Distributions (0.21) (0.44) (0.33)
Net Asset Value, End of Period $10.76 $10.65 $10.34
Total Investment Return 3.03% 7.43% 4.09%
Supplemental Data and Ratios:
Net Assets, End of Period (000s omitted) $24,106 $18,732 $22,008
Ratios to Average Net Assets:
Net Investment Income 3.93%** 4.23% 4.25%**
Expenses, Including Expenses of the
Intermediate Tax Free Portfolio 0.85%** 0.85% 0.85%**
Decrease Reflected in Above Expense
Ratio Due to Absorption of Expenses by
Bankers Trust 0.30%** 0.30% 0.38%**
<CAPTION>
For the years ended
December 31,
----------------------
1995 1994 1993
---- ---- ----
<S><C>
Per Share Operating Performance:
Net Asset Value, Beginning of Period $ 9.72 $10.54 $ 9.99
Income fromInvestment Operations
Net Investment Income 0.47 0.42 0.41
Net Realized and Unrealized Gain (Loss) on Investments 0.84 (0.82) 0.57
Total Income (Loss) from Investment Operations 1.31 (0.40) 0.98
Distributions to Shareholders
Net Investment Income (0.47) (0.42) (0.41)
Net Realized Gain from Investment Transactions -- -- (0.02)
Total Distributions (0.47) (0.42) (0.43)
Net Asset Value, End of Period $10.56 $ 9.72 $10.54
Total Investment Return 13.71% (3.81)% 9.94%
Supplemental Data and Ratios:
Net Assets, End of Period (000s omitted) $22,213 $25,303 $31,709
Ratios to Average Net Assets:
Net Investment Income 4.58% 4.20% 3.88%
Expenses, Including Expenses of the
Intermediate Tax Free Portfolio 0.85% 0.85% 0.85%
Decrease Reflected in Above Expense
Ratio Due to Absorption of Expenses by
Bankers Trust 0.28% 0.36% 0.35%
</TABLE>
- ----------------
* The Board of Trustees approved the change of the fiscal year end from
December 31 to September 30.
** Annualized
+ Unaudited
See Notes to Financial Statements on Page 7
6
<PAGE>
Intermediate Tax Free Fund
Notes to Financial Statements (unaudited)
Note 1--Organization and Significant Accounting Policies
A. Organization
BT Investment Funds (the "Trust") is registered under the Investment Company Act
of 1940 (the "Act"), as amended, as an open-end management investment company.
The Trust was organized on July 21, 1986, as a business trust under the laws of
the Commonwealth of Massachusetts. The 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 March 31, 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 Income
The Fund's income, net of expenses is earned, daily on its investment in the
Portfolio and is recorded on the accrual basis. 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.
C. Dividends
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.
D. Federal Income Taxes
It is the Fund's policy to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute
substantially all of its taxable income to shareholders. The Fund may
periodically make reclassifications among certain of its capital accounts as a
result of the timing and characterization of certain income and capital gains
distributions determined annually in accordance with federal tax regulations
which may differ from generally accepted accounting principles.
E. 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.
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. The
Fund had accrued fees of $4,298 relating to the Administration and Services
Agreement, net of reimbursable expenses of $3,183 as of March 31, 1998.
The Trust entered into a Distribution Agreement with Edgewood Services, Inc.
("Edgewood"). Under the Distribution Agreement with the Trust, pursuant to Rule
12b-1 of the Act, Edgewood may seek reimbursement, at an annual rate not
exceeding .20% of the Fund's average daily net assets, for expenses incurred in
connection with any activities primarily intended to result in the sale of the
Fund's shares. For the six months ended March 31, 1998, there were no
reimbursable expenses incurred under this agreement.
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. For the six months ended March 31, 1998, expenses of the Fund have
been reduced by $17,667.
Certain officers of the Fund are also directors, officers and/or employees of
Edgewood. None of the officers so affiliated received compensation for services
as officers 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 period ended March 31, 1998.
Note 3--Shares of Beneficial Interest
At March 31, 1998, there were an unlimited number of shares of beneficial
interest authorized. Transactions in shares of beneficial interest were as
follows:
For the For the
six months ended year ended
March 31, 1998 (unaudited) September 30, 1997
-------------------------- ----------------------
Shares Amount Shares Amount
------ ------ ------ ------
Sold 759,395 $ 8,180,695 714,509 $ 7,441,482
Reinvested 21,102 226,841 54,979 633,740
Redeemed (300,154) (3,233,913) (1,138,076) (11,952,520)
-------- ----------- ---------- ------------
Net Increase (Decrease) 480,343 $ 5,173,623 (368,588) $ (3,877,298)
======== =========== ========== ============
7
<PAGE>
Intermediate Tax Free Portfolio
Statement of Net Assets March 31, 1998 (unaudited)
Principal
Amount Description Value
--------- ----------- -----
LONG-TERM MUNICIPAL BONDS - 80.63%
Arizona - 1.95%
$ 440,000 Arizona State Transportation Board Excise
Tax, 5.60%, 7/01/03 $ 470,004
-----------
California - 8.93%
500,000 California State, 5.75%, 11/01/11 554,110
1,000,000 Orange County California Transportation
Authority Sales Tax Revenue, Series A,
(MBIA Insured), 5.50%, 2/15/99 1,080,270
500,000 San Diego County California Regulatory
Transportation Commission Sales Tax
Revenue-Ser. A, 5.00%, 4/02/08 523,235
-----------
2,157,615
-----------
Connecticut - 4.61%
500,000 Connecticut State, Series A,
6.25%, 5/15/06 563,660
500,000 Connecticut State Special Tax Obligations,
5.90%, 9/01/05 548,990
-----------
1,112,650
-----------
Delaware - 2.32%
520,000 Delaware Transportation Authority, 6.10%,
7/01/02 559,515
-----------
Florida - 0.22%
50,000 Dade County, Florida Aviation Authority,
5.40%, 10/01/07 53,768
-----------
Indiana - 3.56%
300,000 Indiana University Revenue, 6.60%, 8/01/01 322,803
500,000 Purdue University of Indiana University
Revenue, Series N, 5.50%, 7/01/12 535,785
-----------
858,588
-----------
Maine - 4.19%
445,000 Maine Municipal Bond, Series A, 5.50%,
11/01/10 480,489
500,000 Maine Municipal Bond, Series B, (MBIA
Insured), 5.375%, 11/01/05 531,790
-----------
1,012,279
-----------
Massachusetts - 5.49%
775,000 Massachusetts State Consumer Loan,
Series A, 5.00%, 6/01/14 787,005
500,000 Massachusetts State Consumer Loan,
Series A, 5.50%, 11/01/08 540,180
-----------
1,327,185
-----------
Michigan - 3.11%
500,000 Michigan State Building Authority, (AMBAC
Insured), 6.00%, 10/01/02 538,255
200,000 Michigan State Housing Development
Authority, 6.30%, 12/01/03 212,424
-----------
750,679
-----------
Nebraska - 1.33%
300,000 Nebraska Public Power District Revenue,
5.70%, 1/01/05 320,208
-----------
Nevada - 2.21%
500,000 Clark County, Nevada Highway Improvement
Revenue, (AMBAC Insured), 5.70%, 7/01/03 534,245
-----------
Principal
Amount Description Value
--------- ----------- -----
New Jersey - 0.99%
$ 225,000 New Jersey State Turnpike Authority, 6.00%,
1/01/05 $ 240,115
-----------
New York - 21.53%
700,000 New York City, New York, G.O., Series E,
6.00%, 8/01/07 777,567
500,000 New York State Dormitory Authority Revenue
Cons City University System, (FGIC
Insured), 5.75%, 7/01/13 549,770
500,000 New York State Dormitory Authority Revenue
New York University, (MBIA Insured),
Series A, 6.00%, 7/01/06 554,080
300,000 New York State Dormitory Authority Revenue
State University Educational Facility,
5.00%, 5/15/10 300,873
400,000 New York State Dormitory Authority Revenue
State University Educational Facility,
(AMBAC Insured), Series B, 5.25%,
5/15/10 421,836
500,000 New York State Environmental Facilities
Corp. State Clean Water & Drinking,
5.00%, 6/15/12 503,145
500,000 New York State Environment Facilities Corp.,
5.75%, 6/15/10 549,035
500,000 New York State Environmental Facilities Corp.,
Pollution Control Revenue State Water
Revolving Fund, Series C, 5.05%,
12/15/10 514,370
500,000 New York State Local Government Assistance
Corp., Series E, 5.25%, 4/01/16 514,725
500,000 Oyster Bay New York, 5.00%, 2/01/09 517,530
-----------
5,202,931
-----------
North Carolina - 2.84%
650,000 North Carolina State, 5.10%, 6/01/07 686,374
-----------
Ohio - 4.42%
1,000,000 Cleveland, Ohio, (AMBAC Insured),
5.375%, 9/02/09 1,067,740
-----------
Tennessee - 1.85%
10,000 Shelby County, Tennessee Public
Improvement, Series B, 5.25%, 11/01/06 10,602
405,000 Shelby County, Tennessee Public
Improvement, Series B, 5.50%, 8/01/07 437,165
-----------
447,767
-----------
Texas - 5.82%
300,000 Texas Water Resources Finance Authority
Revenue, 7.30%, 8/15/04 311,139
500,000 University of Texas, Series A, 6.50%, 8/15/01 538,385
500,000 Texas State, Series A, 6.00% 10/01/06 556,225
-----------
1,405,749
-----------
Vermont - 2.62%
615,000 Vermont State, Series B, 5.00%, 1/15/10 633,757
-----------
Virginia - 1.78%
400,000 Arlington County Virginia, 5.50%, 8/01/05 430,936
-----------
Wisconsin - 0.86%
200,000 Wisconsin State Transportation, 6.00%,
7/01/00 208,872
-----------
Total Long-Term Municipal Bonds (Cost $18,772,463) $19,480,977
-----------
See Notes to Financial Statements on Page 12
8
<PAGE>
Intermediate Tax Free Portfolio
Statement of Net Assets March 31, 1998 (unaudited)
Principal
Amount Description Value
--------- ----------- -----
FLOATING RATE DEMAND NOTES - 22.56%
Arizona - 4.14%
$ 100,000 Pinal County Arizona Industrial Development
Authority Pollution Control Revenues,
3.70%, 12/01/09 $ 100,000
900,000 Pinal County Arizona Industrial Development
Authority Pollution Control Revenues,
3.70%, 12/01/09 900,000
-----------
1,000,000
-----------
Florida - 3.31%
800,000 Pinellas County Florida Health Facility
Authority Revenue, 3.70%, 12/01/15 800,000
-----------
Mississippi - 4.55%
1,100,000 Perry County Mississippi Pollution Control
Revenue, 3.85%, 3/01/02 1,100,000
-----------
Montana - 1.66%
400,000 Forsyth Montana Pollution Control Revenue,
4.00%, 1/01/18 400,000
-----------
Principal
Amount Description Value
--------- ----------- -----
New York - 6.00%
$ 150,000 New York, New York, G.O., 3.65%, 8/01/21 $ 150,000
100,000 New York, New York, G.O., 3.80%, 8/01/16 100,000
100,000 New York, New York, G.O., 3.80%, 8/15/17 100,000
900,000 New York, New York, G.O., 3.80%, 10/01/21 900,000
200,000 New York, New York, G.O., 3.85%, 8/01/15 200,000
-----------
1,450,000
-----------
Pennsylvania - 2.48%
600,000 Delaware County Pennsylvania Industrial
Development Authority Pollution Control
Revenue, 3.60%, 8/01/16 600,000
-----------
Tennessee - 0.42%
100,000 Metropolitan Nashville Airport Authority
Special Facility Revenue, Series B, 3.75%,
10/01/12 100,000
-----------
Total Floating Rate Demand Notes (Cost $5,450,000) 5,450,000
-----------
Total Investments (Cost $24,222,463) 103.19% $24,930,977
Liabilities in Excess of Other Assets (3.19)% (769,899)
------- -----------
Net Assets 100.00% $24,161,078
======= ===========
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 Insurance Corporation
- -------------------------------------------------------------------------------
Statement of Operations For the six months ended March 31, 1998
(unaudited)
<TABLE>
<S><C>
Investment Income
Interest $ 479,531
---------------
Expenses
Advisory Fees 40,190
Administration and Services Fees 5,024
Professional Fees and Other 11,111
Trustees Fees 1,045
---------------
Total Expenses 57,370
Less Expenses Absorbed by Bankers Trust (12,155)
---------------
Net Expenses 45,215
---------------
Net Investment Income 434,316
---------------
Realized and Unrealized Gain on Investments
Net Realized Gain from Investment Transactions 109,880
Net Change in Unrealized Appreciation/Depreciation on Investments 89,778
---------------
Net Realized and Unrealized Gain on Investments 199,658
---------------
Net Increase in Net Assets from Operations $ 633,974
==============
</TABLE>
See Notes to Financial Statements on Page 12
9
<PAGE>
Intermediate Tax Free Portfolio
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the For the
six months ended year ended
March 31, 1998+ September 30, 1997
---------------- ------------------
<S><C>
Increase (Decrease) in Net Assets from:
Operations
Net Investment Income $ 434,316 $ 992,177
Net Realized Gain from Investment Transactions 109,880 692,950
Net Change in Unrealized Appreciation/Depreciation on Investments 89,778 (90,805)
--------------- ---------------
Net Increase in Net Assets from Operations 633,974 1,594,322
--------------- ---------------
Capital Transactions
Proceeds from Capital Invested 8,802,773 7,698,778
Value of Capital Withdrawn (3,658,689) (12,929,481)
--------------- ---------------
Net Increase (Decrease) in Net Assets from Capital Transactions 5,144,084 (5,230,703)
--------------- ---------------
Total Increase (Decrease) in Net Assets 5,778,058 (3,636,381)
Net Assets
Beginning of Period 18,383,020 22,019,401
--------------- ---------------
End of Period $ 24,161,078 $ 18,383,020
=============== ===============
</TABLE>
- -------------------------------------------------------------------------------
Financial Highlights
Contained below are selected supplemental data and ratios to average net assets
for the periods indicated for the Intermediate Tax Free Portfolio.
<TABLE>
<CAPTION>
For the years ended
For the six For the For the period December 31,
months ended year ended January 1, 1996 to ----------------------
March 31, 1998+ September 30, 1997 September 30, 1996* 1995 1994 1993
--------------- ------------------ ------------------- ------ ------ ------
<S><C>
Supplemental Data and Ratios:
Net Assets, End of Period (000s omitted) $24,161 $18,383 $22,019 $22,253 $25,326 $31,745
Ratios to Average Net Assets:
Net Investment Income 4.32%** 4.62% 4.64%** 4.97% 4.58% 4.29%
Expenses 0.45%** 0.45% 0.45%** 0.45% 0.45% 0.45%
Decrease Reflected in Above Expense
Ratio Due to Absorption of Expenses by
Bankers Trust 0.12%** 0.11% 0.14%** 0.08% 0.14% 0.18%
Portfolio Turnover Rate 49% 171% 130% 95% 118% 40%
</TABLE>
- ----------
* The Board of Trustees approved the change of the fiscal year from December 31
to September 30.
** Annualized.
+ Unaudited
See Notes to Financial Statements on Page 12
10
<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
obligations with remaining maturities of 60 days or less are valued at amortized
cost. Other short-term debt securities are valued on a mark-to-market basis
until such time as they reach a remaining maturity of 60 days, whereupon they
will be 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
It is the Portfolio's policy to comply with the requirements of the Internal
Revenue Code. Therefore, no federal income tax provision is required.
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
$937 as of March 31, 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 $5,466,
net of reimbursable expenses of $2,033 as of March 31, 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. For the six months ended March
31, 1998, expenses of the Portfolio have been reduced by $12,155.
Certain officers of the Portfolio are also directors, officers and/or employees
of Edgewood Services, Inc., distributor of the BT Investment Funds. None of the
officers so affiliated received compensation for services as officers 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 period ended March 31, 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 six months ended March 31, 1998 were
$11,789,994 and $8,481,644, respectively. Payable for securities purchased
amounted to $1,082,191 at March 31, 1998.
For federal income tax purposes, the tax basis of investments held at March 31,
1998 was $24,222,463.
The aggregate gross unrealized appreciation for all investments was $725,206,
and the aggregate gross unrealized depreciation for all investments was $16,692.
Note 4--Net Assets
On March 31, 1998, net assets consisted of:
Paid in Capital $23,452,564
Net Unrealized Appreciation on Investments 708,514
-----------
$24,161,078
===========
11
<PAGE>
BT INVESTMENT FUNDS
INTERMEDIATE TAX FREE FUND
Investment Advisor and Administrator of the Portfolio
BANKERS TRUST COMPANY
130 Liberty Street
New York, NY 10006
Distributor
EDGEWOOD SERVICES, INC.
Clearing Operations
P.O. Box 897
Pittsburgh, PA 15230-0897
Custodian and Transfer Agent
BANKERS TRUST COMPANY
130 Liberty Street
New York, NY 10006
Independent Accountants
COOPERS & LYBRAND L.L.P.
1100 Main Street, Suite 900
Kansas City, MO 64105
Counsel
WILLKIE FARR & GALLAGHER
153 East 53rd Street
New York, NY 10022
----------------------
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 must be preceded or
accompanied by a current prospectus for the Fund.
----------------------
STA467100 (5/98)
