(GRAPHIC APPEARS HERE)
Mutual Fund
Annual Report
December 31, 1999
U.S.Bond Index Fund
(GRAPHIC APPEARS HERE)
<PAGE>
U.S. Bond Index Fund
Table of Contents
Letter to Shareholders 3
U.S. Bond Index Fund
Statement of Assets and Liabilities 6
Statement of Operations 7
Statements of Changes in Net Assets 8
Financial Highlights 9
Notes to Financial Statements 10
Report of Independent Accountants 12
Tax Information 12
U.S. Bond Index Portfolio
Schedule of Portfolio Investments 13
Statement of Assets and Liabilities 19
Statement of Operations 20
Statements of Changes in Net Assets 21
Financial Highlights 22
Notes to Financial Statements 23
Report of Independent Accountants 25
Proxy Results 26
---------------
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>
U.S. Bond Index Fund
Letter to Shareholders
We are pleased to present you with this annual report for the U.S. Bond Index
Fund (the "Fund"), providing a detailed review of the market, the Portfolio, and
our outlook. Included are a complete financial summary of the Fund's operations
and a listing of the Portfolio's holdings.
MARKET ACTIVITY
In contrast to the strong performance of 1998, the U.S. bond markets overall
performed weakly during 1999, with the yield on the 10-year Treasury rising from
4.65% on December 31, 1998 to 6.44% on December 31, 1999. In fact, interest
rates in the U.S. rose in ten of the twelve months. The increase in yield, which
causes depreciation in price, produced a negative return in the Lehman Aggregate
Bond Index for the annual period, even with the coupon income. This was only the
second time in history that this Index posted a negative annual return.
The fixed income markets came under pressure right from the start of the year,
as continued strength in the U.S. economy renewed concerns about a possible
tightening by the Federal Reserve Board.
o In his Humphrey-Hawkins testimony, Federal Reserve Board Chairman Greenspan
said that the U.S. economy appeared to be "stretched," and that after eight
years of expansion, it remained uncertain whether the economy could continue
to grow without a pick-up in inflation. Despite questioning whether the third
easing engineered late in 1998 to address the global turmoil remained
appropriate as market disturbances abated, Greenspan mentioned that the
Federal Reserve Board stood ready to move interest rates in either direction
if events warranted.
o Meanwhile, the U.S. economy continued to fire on all cylinders, and the
inflation picture remained tame. Foreign economies, such as Japan, stabilized
and showed signs of recovery.
o At their June meeting on the last day of the month, the Federal Reserve Board
raised the targeted federal funds rate by 0.25% to 5.00%. While there was
still little evidence of inflation, this monetary policy tightening was
intended to make sure the economy did not get derailed by a spiral of rising
wages and prices.
INVESTMENT REVIEW
<TABLE>
<CAPTION>
Cumulative Total Returns Average Annual Total Returns
Periods ended Past 1 Since Past 1 Since
December 31, 1999 year inception year inception
----------------- ---- --------- ---- ---------
<S><C>
U.S. Bond Index Fund(1)
Institutional Class Shares
(inception 6/30/97) -1.30% 14.37% -1.30% 5.51%
Lehman Brothers Aggregate
Bond Index(2) -0.82% 14.65% -0.82% 5.62%
Lipper U.S. Bond Index
Funds Average(3) -0.79% 14.72% -0.79% 5.64%
</TABLE>
- ----------
(1) PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. Investment return and
principal value will fluctuate so that an investor's shares, when redeemed,
may be worth more or less than their original cost.
(2) This index is unmanaged, and investments cannot be made in an index.
(3) Lipper figures represent the average of the total returns, reported by all
of the mutual funds designated by Lipper, Inc. as falling into the
respective categories indicated. These figures do not reflect sales charges.
3
<PAGE>
U.S. Bond Index Fund
Letter to Shareholders
PORTFOLIO DIVERSIFICATION
By Sector as of December 31, 1999 (percentages are based on net assets)
U.S. Government & Agency 39%
U.S.Treasury Securities 32
Industrial 9
Financial 7
Utility 3
Asset Backed Securities 2
Cash & Other Assets 2
Foreign Finance 2
Foreign Government 2
Medium-Term Notes 2
During the second half of 1999, the U.S. bond markets continued to post weak
returns, impacted by two additional Federal Reserve Board tightenings.
o On August 24th, the Federal Reserve Board tightened a second time, raising the
targeted federal funds rate by 0.25% to 5.25%. Shortly after, Chairman
Greenspan made comments suggesting that the Fed would pay close attention to
the stock market and its impact on the economy. These comments prompted the
fixed income markets to sell off; yields continued to climb.
o On November 16th, the Fed tightened monetary policy for a third time, bringing
the federal funds rate to 5.50% from 4.75% at the start of the year.
o Although it left rates unchanged with a neutral bias at its December meeting,
the Fed's hawkish comments after the meeting put additional pressure on the
bond markets as 1999 came to a close.
o Signs of a very strong economy continued throughout, climaxing with a solid
holiday season.
Overall, on a duration-adjusted basis, both mortgage-backed securities and
corporate bonds outperformed Treasuries for 1999.
o Increased liquidity coupled with strength in the U.S. economy helped corporate
bond spreads narrow and allowed them to post their best relative return since
1991. In fact, on a duration-adjusted basis, corporate bonds outperformed
Treasuries by over 1.70%.
o Lower quality corporate bonds outperformed the higher quality for the annual
period, and the Yankee sector, i.e. dollar-denominated bonds issued in the
U.S. by foreign corporations, was the best performing sector within the
corporate bond market.
o Mortgage-backed securities did not do quite as well as corporate bonds for the
year, but still outperformed Treasuries by over 1.10%.
o The mortgage-backed sector became the single largest asset class within the
Lehman Aggregate Bond Index during 1999, surpassing Treasuries. Specifically,
mortgages had a more than 34% Index weighting as of December 31, 1999, as
compared to a 32.5% weighting for Treasuries.
The Fund's benchmark, the Lehman Brothers Aggregate Bond Index, is a broad
market-weighted index, which encompasses U.S. Treasury and agency securities,
corporate investment grade bonds, international (dollar-denominated) investment
grade bonds, and mortgage-backed securities, with maturities greater than one
year.
MANAGER OUTLOOK
As of this writing just past the new year, we know that the concerns and fears
surrounding Y2K turned out to be a non-event. The world at large and the
financial markets in particular continued to hum along without interruption.
Looking ahead for the near term, we believe the U.S. economy still has
substantial momentum, and the financial fundamentals for both households and
businesses remain strong. Thus, we also believe that it will take somewhat
higher interest rates to tone down the economy. The Federal Reserve Board could,
in our view, continue to increase rates in the first half of the year 2000, as
it seeks to slow real economic growth to a more sustainable pace. Should the Fed
tighten and should inflation pick up a bit, we expect yields may drift modestly
higher and the yield curve may flatten. Clearly, the degree of tightening and
the timing of the Federal Reserve Board's next moves will be key to U.S. bond
market performance in the months ahead.
Of course, as an index fund, designed to replicate as closely as possible
(before deduction of expenses) the investment performance of the Lehman Brothers
Aggregate Bond Index, we neither evaluate short-term fluctuations in the Fund's
performance nor manage
4
<PAGE>
U.S. Bond Index Fund
Letter to Shareholders
according to a given outlook for the bond markets or the economy in general.
Still, we will continue monitoring economic conditions and how they affect the
financial markets, as we seek to closely track the performance of the broad U.S.
bond market.
We appreciate your support of the U.S. Bond Index Fund and look forward to
continuing to serve your investment needs for many years ahead.
/s/ Louis R. D'Arienzo
Louis R. D'Arienzo
Portfolio Manager of the U.S. Bond Index Portfolio
December 31, 1999
Performance Comparison
U.S. BOND INDEX FUND AND LEHMAN BROTHERS AGGREGATE BOND INDEX
GROWTH OF A $10,000 INVESTMENT (SINCE JUNE 30, 1997)
(GRAPHIC APPEARS HERE)
U.S. Bond Index Fund - $11,437 Lehman Aggregate Bond Index - $11,465
6/97 10,000 10,000
12/97 10,652 10,636
6/98 11,072 11,054
12/98 11,588 11,560
6/99 11,379 11,402
12/99 11,437 11,456
Institutional Total Return for the Period Ended December 31, 1999
One Year (1.30)% Since 6/30/97(1) 5.51%(2)
- ----------
(1) The Fund's inception date.
(2) Annualized
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. Investment return and
principal value will fluctuate so that shares, when redeemed, may be worth more
or less than their original cost. The Lehman Brothers Aggregate Bond Index is
unmanaged and investments may not be made in an index. The index return does not
reflect expenses, which have been deducted from the Funds return. Performance
figures assume the reinvestment of dividends and capital gain distributions.
5
<PAGE>
U.S. Bond Index Fund
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
As of
December 31, 1999
-----------------
<S><C>
Assets
Investment in U.S. Bond Index Portfolio, at Value $ 92,659,716
Receivable for Shares of Beneficial Interest Subscribed 481,387
Prepaid Expenses and Other 25,652
----------------
Total Assets 93,166,755
----------------
Liabilities
Dividends Payable 476,571
Accrued Expenses 29,232
Due to Bankers Trust 3,605
----------------
Total Liabilities 509,408
----------------
Net Assets $ 92,657,347
================
Composition of Net Assets
Paid-in Capital $ 95,695,943
Undistributed Net Investment Income 28,147
Accumulated Net Realized Loss from Investment Transactions (573,233)
Net Unrealized Depreciation on Investment (2,493,510)
----------------
Net Assets $ 92,657,347
================
Shares Outstanding ($0.001 par value per share, unlimited number of
shares of beneficial interest authorized) 9,496,854
================
Net Asset Value, Offering and Redemption Price Per Share
(net assets divided by shares outstanding) $ 9.76
================
</TABLE>
See Notes to Financial Statements.
6
<PAGE>
U.S. Bond Index Fund
Statement of Operations
<TABLE>
<CAPTION>
For the year ended
December 31, 1999
-----------------
<S><C>
Investment Income
Income Allocated from U.S. Bond Index Portfolio, net $ 3,633,156
-------------
Expenses
Administration and Services Fees 124,261
Professional Fees 27,811
Trustees Fees 21,879
Printing and Shareholder Reports 17,664
Registration Fees 8,757
Commitment Fees 2,046
Tax Expense 690
Miscellaneous 10,689
-------------
Total Expenses 213,797
Less: Fee Waivers or Expense Reimbursements (182,731)
-------------
Net Expenses 31,066
-------------
Net Investment Income 3,602,090
Realized and Unrealized Loss on Investment
Net Realized Loss from Investment Transactions (569,891)
Net Change in Unrealized Appreciation/Depreciation of Investment (3,268,117)
-------------
Net Realized and Unrealized Loss on Investment (3,838,008)
-------------
Net Decrease in Net Assets from Operations $ (235,918)
=============
</TABLE>
See Notes to Financial Statements.
7
<PAGE>
U.S. Bond Index Fund
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the years ended December 31,
1999 1998
<S><C>
Increase (Decrease) in Net Assets from:
Operations
Net Investment Income $ 3,602,090 $ 1,250,303
Net Realized Gain (Loss) from Investment
Transactions (569,891) 114,224
Net Change in Unrealized Appreciation/Depreciation
on Investment (3,268,117) 348,343
-------------- -------------
Net Increase (Decrease) in Net Assets from Operations (235,918) 1,712,870
-------------- -------------
Distributions to Shareholders
Net Investment Income
Institutional Class (3,602,090) (1,079,624)
Advisor Class -- (169,643)
Net Realized Gain from Investment Transactions
Institutional Class -- (275,177)
Advisor Class -- --
-------------- -------------
Total Distributions (3,602,090) (1,524,444)
-------------- -------------
Capital Transactions in Shares of Beneficial Interest
Net Increase Resulting from Institutional
Class Shares 56,705,230 31,539,521
Net Decrease Resulting from Advisor
Class Shares(1) -- (298,845)
-------------- -------------
Net Increase from Capital Transactions in Shares of
Beneficial Interest 56,705,230 31,240,676
-------------- -------------
Total Increase in Net Assets 52,867,222 31,429,102
Net Assets
Beginning of Year 39,790,125 8,361,023
-------------- -------------
End of Year (includes undistributed net investment
income of $28,147 and $15,998 for the years
ended December 31,1999 and 1998, respectively) $ 92,657,347 $ 39,790,125
============= =============
</TABLE>
- ----------
(1) Advisor Class Shares were converted to Institutional Class Shares on July
10, 1998.
See Notes to Financial Statements.
8
<PAGE>
U.S. Bond Index Fund
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 U.S. Bond Index Fund.
<TABLE>
<CAPTION>
Institutional Class Shares Advisor Class Shares
For the For the
period period
June 30, For the June 30
1997(2) period 1997(2)
For the years ended through ended through
December 31, Dec. 31, July 10, Dec. 31,
1999 1998(1) 1997 19981 1997
---- ------- ---- ------- ----
<S><C>
Per Share Operating Performance:
Net Asset Value, Beginning of Period $10.47 $10.29 $10.00 $10.26 $10.00
------ ------ ------ ------ ------
Income from Investment Operations
Net Investment Income 0.57 0.59 0.33 0.32 0.32
Net Realized and Unrealized
Gain (Loss) on Investment
Transactions (0.70) 0.29 0.32 0.09 0.29
------ ------ ------ ------ ------
Total from Investment Operations (0.13) 0.88 0.65 0.41 0.61
Distributions to Shareholders
Net Investment Income (0.58) (0.61) (0.32) (0.32) (0.31)
Net Realized Gain from Investment
Transactions -- (0.09) (0.04) -- (0.04)
------ ------ ------ ------ ------
Total Distributions (0.58) (0.70) (0.36) (0.32) (0.35)
------ ------ ------ ------ ------
Net Asset Value, End of Period $ 9.76 $10.47 $10.29 $10.35 $10.26
====== ====== ====== ====== ======
Total Investment Return (1.30)% 8.78% 6.52% 3.60% 6.15%
Supplemental Data and Ratios:
Net Assets, End of Period
(000s omitted) $92,657 $39,790 $ 8,119 $ -- $ 242
Ratios to Average Net Assets:
Net Investment Income 5.79% 5.70% 6.32%(3) 5.81%(3) 6.31%(3)
Expenses After Waivers,
Including Expenses of the
U.S. Bond Index Portfolio 0.15% 0.15% 0.15%(3) 0.35%(3) 0.35%(3)
Expenses Before Waivers,
Including Expenses of the
U.S. Bond Index Portfolio 0.56% 0.90% 0.86%(3) 0.64%(3) 14.88%(3)
Decrease Reflected in Above
Expense Ratio Due to Fee
Waivers or Expense
Reimbursements 0.41% 0.75% 0.71%(3) 0.29%(3) 14.53%(3)
</TABLE>
- ----------
(1) Advisor Class Shares were converted to Institutional Class Shares on July
10, 1998.
(2) Commencement of Operations.
(3) Annualized.
See Notes to Financial Statements.
9
<PAGE>
U.S. Bond Index Fund
Notes to Financial Statements
Note 1--Organization and Significant
Accounting Policies
A. Organization
BT Advisor 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 24, 1995, as a business trust under the laws of the
Commonwealth of Massachusetts. The U.S. Bond Index Fund (the "Fund") is one of
the funds offered to investors by the Trust.
The Fund offers one class of shares to investors, the Institutional Class. The
Institutional Class began operations and offering shares of beneficial interest
on June 30, 1997. The Fund previously offered another class of shares, the
Advisor Class. On July 10, 1998, the Fund's Advisor Class was closed and all
Advisor Class shares were exchanged into the Fund's Institutional Class based on
a 1 to 1.0048 exchange ratio. As a result of the exchange, 780,950 shares of the
Institutional Class, representing $8,121,885 in net assets, were issued at the
net asset value of $10.40 per share.
The Fund seeks to achieve its investment objective by investing all of its
investable assets in the U.S. Bond Index Portfolio (the "Portfolio"). The
Portfolio is an open-end management investment company registered under the Act.
The value of the Fund's investment in the Portfolio reflects the Fund's
proportionate interest in the net assets of the Portfolio. At December 31, 1999,
the Fund's proportionate interest in net assets of the Portfolio was
approximately 84%.
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. Security 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.
C. Investment Income
The Fund earns income, net of expenses, daily on its investment in the
Portfolio. All of the net investment income and realized and unrealized gains
and losses from the security transactions of the Portfolio are allocated pro
rata among the investors in the Portfolio at the time of such determination.
D. Distributions
It is the Fund's policy to declare dividends daily and pay them monthly to
shareholders from net investment income. Dividends and distributions payable to
shareholders are recorded by the Fund on the ex-dividend date. Distributions of
net realized short-term and long-term capital gains, if any, earned by the Fund
are made annually to the extent they exceed 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 distribute all of its
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 differences in the characterization and allocation of
certain income and capital gain distributions determined annually in accordance
with federal tax regulations which may differ from generally accepted accounting
principles. The Fund has deferred a post October capital loss of $326,936 to
next year.
F. Other
The Trust accounts separately for the assets, liabilities and operations of
the Fund. Expenses directly attributable to each fund are charged to that
fund, while expenses that are attributable to the Trust are allocated among the
funds in the Trust. Investment transactions are accounted for on a trade date
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"), an indirect wholly owned subsidiary of Deutsche
Bank AG. Under this agreement, Bankers Trust
10
<PAGE>
U.S. Bond Index Fund
Notes to Financial Statements
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 .20% of average daily net assets.
Bankers Trust has contractually agreed to waive its fees through April 30, 2000
and reimburse expenses of the Fund, to the extent necessary, to limit the
expenses of the Institutional Class to .05% of the average daily net assets of
the Fund excluding expenses of the Portfolio and .15% of the average daily net
assets of the Institutional Class, including expenses of the Portfolio.
ICC Distributors, Inc. provides distribution services to the Fund.
Note 3--Shares of Beneficial Interest
At December 31, 1999, there were an unlimited number of shares of beneficial
interest authorized. Transactions in shares of beneficial interest were as
follows:
Institutional Class Shares(1)
-------------------------------------------------------------
For the Year Ended For the Year Ended
December 31, 1999 December 31, 1998
-------------------------------------------------------------
Shares Amount Shares Amount
------------- -------------- ----------- --------------
Sold 7,130,789 $71,404,613 2,260,374 $23,757,235
Reinvested 321,587 3,209,245 101,987 1,067,174
Redeemed (1,754,698) (17,908,628) (133,268) (1,406,773)
Exchanged -- -- 780,950 8,121,885
------------- -------------- ----------- --------------
Net Increase 5,697,678 $56,705,230 3,010,043 $31,539,521
============= ============== =========== ==============
Advisor Class Shares(1)
- -----------------------------------------------
For the Year Ended
December 31, 1998
- -----------------------------------------------
Shares Amount
------------ -------------
Sold 762,794 $ 7,840,310
Reinvested 11,878 122,192
Redeemed (13,500) (139,462)
Exchanged (784,723) (8,121,885)
------------ -------------
Net Decrease (23,551) $ (298,845)
============ =============
- ----------
(1) On July 10, 1998 shareholders of the Advisor Class exchanged their shares
into the Institutional Class and the Advisor Class ceased operations.
Note 4--Capital Loss Carryforwards
At December 31, 1999, capital loss carryforwards available as a reduction
against future net realized capital gains consisted of $246,297, which will
expire in 2007.
Note 5--Class Name Change
On April 30, 2000, the Class will change its name from U.S. Bond Index Fund
Institutional Class to U.S. Bond Index Fund--Premier Class.
11
<PAGE>
U.S. Bond Index Fund
Report of Independent Accountants
To the Trustees of BT Advisor Funds and the
Shareholders of U.S. Bond Index 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 U.S. Bond Index Fund (one of the funds comprising the BT Advisor Funds,
hereafter referred to as the "Fund") at December 31, 1999, 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 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 December
31, 1999 by correspondence with the transfer agent, provide a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
Baltimore, Maryland
February 11, 2000
Tax Information (Unaudited) For the Tax Year Ended December 31, 1999
We are providing this information as required by the Internal Revenue Code. The
amounts may differ from those elsewhere in this report because of differences
between tax and financial reporting requirements.
The Fund's distributions to shareholders included $3,264 from long-term capital
gains, all of which is taxable at the 20% capital gains rate.
Of the ordinary distributions made during the year ended December 31, 1999,
57.54% have been derived from investments in U.S. Government and Agency
Obligations. All or a portion of the distributions from this income may be
exempt from taxation at the state level. Consult your tax advisor for state
specific information.
12
<PAGE>
U.S. Bond Index Portfolio
Schedule of Portfolio Investments December 31, 1999
Principal
Amount Securities Value
-------- ---------- -----
Corporate Debt
Non-Convertible - 18.6%
Financial - 7.1%
ABN Amro Bank,
$ 540,000 7.125%, 6/18/07 $ 526,194
Ahold Finance USA,
10,000 6.25%, 5/1/09 9,087
Allstate Corp.,
100,000 7.20%, 12/1/09 97,279
American General Finance,
225,000 7.25%, 5/15/05 223,661
Associates Corp.,
250,000 6.75%, 7/15/01 249,580
Bank One Corp.,
200,000 7.125%, 5/15/07 193,388
BankAmerica Corp.:
200,000 7.125%, 5/12/05 197,335
200,000 7.125%, 5/1/06 196,403
Bank of New York,
65,000 7.30%, 12/1/09 63,793
Barclays Bank PLC,
60,000 7.40%, 12/15/09 59,050
Bear Stearns Co.:
40,000 6.15%, 3/2/04 38,193
400,000 7.08%, 6/15/09 390,651
Chase Manhattan Corp.,
300,000 7.125%, 6/15/09 291,477
Chrysler Financial Corp.,
100,000 6.95%, 3/25/02 100,187
CIT Group,
75,000 7.125%, 10/15/04 74,469
Citigroup, Inc.,
200,000 8.625%, 2/1/07 212,552
Conoco, Inc.,
15,000 6.35%, 4/15/09 13,902
Countrywide Funding Corp.,
500,000 6.875%, 9/15/05 485,103
Deutsche Ausgleichsbank,
25,000 6.50%, 9/15/04 24,541
Dresdner Bank,
40,000 6.625%, 9/15/05 38,224
Principal
Amount Securities Value
-------- ---------- -----
FHLMC:
$ 450,000 6.25%, 10/15/02 $ 446,064
250,000 6.25%, 7/15/04 244,250
125,000 6.75%, 9/15/29 118,640
First Union Corp.,
100,000 7.50%, 7/15/06 99,672
Fleet Financial Group,
65,000 7.375%, 12/1/09 63,686
Ford Motor Credit:
200,000 7.20%, 6/15/07 196,834
200,000 7.375%, 10/28/09 197,844
General Electric Capital,
500,000 8.125%, 4/1/08 519,136
General Motor Acceptance Corp.,
100,000 9.625%, 5/15/00 101,179
Goldman Sachs Group:
15,000 6.65%, 5/15/09 13,998
50,000 7.35%, 10/1/09 48,924
Heller Financial,
30,000 6.00%, 3/19/04 28,445
HSBC Holding PLC,
100,000 7.50%, 7/15/09 98,790
IBM Corp.,
100,000 6.50%, 1/15/28 88,789
John Deere Capital,
35,000 6.00%, 2/15/09 31,026
Key Corp.,
100,000 7.50%, 6/15/06 99,413
Lehman Brothers Holdings:
10,000 7.00%, 5/15/03 9,866
100,000 6.625%, 4/1/04 96,963
150,000 7.875%, 11/1/09 149,956
MBIA, Inc.,
125,000 9.375%, 2/15/11 141,193
Merrill Lynch & Co., Inc.,
300,000 6.64%, 9/19/02 297,087
Motorola Inc.,
200,000 7.60%, 1/1/07 200,878
National Westminister Bank,
50,000 7.375%, 10/1/09 48,909
NationsBank Corp.,
100,000 6.50%, 3/15/06 95,987
See Notes to Financial Statements.
13
<PAGE>
U.S. Bond Index Portfolio
Schedule of Portfolio Investments December 31, 1999
Principal
Amount Securities Value
-------- ---------- -----
Norwest Corp.,
$ 200,000 6.75%, 6/15/07 $ 193,176
Pitney Bowes CRD,
100,000 8.55%, 9/15/09 106,911
PNC Funding Corp.,
300,000 6.875%, 7/15/07 286,628
Sprint Capital Corp.,
100,000 6.50%, 11/15/01 99,129
Texaco Capital, Inc.,
100,000 8.50%, 2/15/03 104,464
US Bancorp,
110,000 8.125%, 5/15/02 112,414
Westdeutsche Landesbank
Girozentrale,
40,000 6.05%, 1/15/09 35,835
------------
7,861,155
------------
Industrial - 8.6%
Amoco Co.,
250,000 6.50%, 8/1/07 241,200
AT&T Corp.:
100,000 6.00%, 3/15/09 91,243
35,000 6.50%, 3/15/29 30,054
Burlington Resources,
50,000 7.375%, 3/1/29 46,969
Cable and Wireless Communication,
100,000 6.75%, 3/6/08 99,292
Campbell Soup Co.,
250,000 4.75%, 10/1/03 232,698
Case Corp.,
35,000 6.25%, 12/1/03 33,617
CBS Westinghouse Electric Co.,
30,000 6.875%, 9/1/03 29,461
Chevron Corp.,
100,000 6.625%, 10/1/04 98,671
Coca-Cola Enterprises,
500,000 8.50%, 2/1/22 533,461
Comcast Cablevision,
100,000 6.20%, 11/15/08 90,796
Conagra, Inc.,
100,000 7.125%, 10/1/26 97,915
Corning, Inc.,
100,000 6.85%, 3/1/29 88,716
Principal
Amount Securities Value
-------- ---------- -----
Cox Communications,
$ 10,000 6.15%, 8/1/03 $ 9,635
DaimlerChrysler,
150,000 7.20%, 9/1/09 147,523
Dana Corp.,
45,000 6.50%, 3/1/09 41,008
Dayton Hudson Corp.,
200,000 9.75%, 7/1/02 211,496
Delphi Auto Systems Corp.:
5,000 6.125%, 5/1/04 4,734
5,000 7.125%, 5/1/29 4,406
Delta Airlines,
100,000 10.375%, 12/15/22 117,519
Dial Corp.,
10,000 6.50%, 9/15/08 9,204
E.I. duPont de Nemours Co.:
400,000 8.125%, 3/15/04 414,537
150,000 6.875%, 10/15/09 145,334
Electronic Data Systems,
55,000 7.125%, 10/15/09 53,639
Federated Department Stores,
300,000 7.45%, 7/15/17 286,978
Ford Motor Co.:
200,000 8.875%, 1/15/22 221,284
100,000 6.625%, 10/1/28 87,225
500,000 7.75%, 6/15/43 489,000
Gap, Inc.,
250,000 6.90%, 9/15/07 242,030
General Motors Co.,
200,000 8.80%, 3/1/21 221,146
Hanson Overseas PLC,
300,000 6.75%, 9/15/05 287,531
Hertz Corp.,
200,000 7.00%, 7/15/03 197,797
ICI Wilmington,
100,000 6.95%, 9/15/04 97,562
J. Seagram & Sons,
150,000 9.65%, 8/15/18 171,151
Lockheed Martin Corp.,
200,000 7.25%, 5/15/06 191,175
Lucent Technologies,
50,000 6.45%, 3/15/29 43,681
See Notes to Financial Statements.
14
<PAGE>
U.S. Bond Index Portfolio
Schedule of Portfolio Investments December 31, 1999
Principal
Amount Securities Value
-------- ---------- -----
Mattel, Inc.,
$ 250,000 6.125%, 7/15/05 $ 228,792
McDonalds Corp.,
300,000 8.875%, 4/1/11 334,188
Merck & Co.,
500,000 6.40%, 3/1/28 441,959
Nippon Telegraph & Telephone,
10,000 6.00%, 3/25/08 9,245
Norfolk Southern Corp.,
100,000 6.95%, 5/1/02 99,292
Potash Corp.,
300,000 7.125%, 6/15/07 284,379
Procter & Gamble Co.,
250,000 5.25%, 9/15/03 237,499
Prologis Trust,
10,000 7.10%, 4/15/08 9,270
Republic Services, Inc.,
10,000 7.125%, 5/15/09 8,995
Safeway, Inc.:
30,000 6.05%, 11/15/03 28,690
40,000 7.50%, 9/15/09 39,567
Sears, Roebuck & Co.,
300,000 8.30%, 10/26/04 305,480
Sony Corp.,
100,000 6.125%, 3/4/03 97,810
Southwest Airlines Co.,
500,000 8.00%, 3/1/05 513,528
Spieker Properties,
10,000 6.80%, 5/1/04 9,604
TCI Communication,
100,000 7.125%, 2/15/28 91,979
Tennessee Valley Authority,
500,000 7.25%, 7/15/43 465,234
Time Warner, Inc.,
100,000 6.625%, 5/15/29 85,357
Unicom Corp.,
50,000 7.875%, 9/15/09 49,189
Union Pacific Corp.,
16,000 6.79%, 11/9/07 15,123
United Technologies:
50,000 7.00%, 9/15/06 49,337
10,000 6.70%, 8/1/28 8,905
Principal
Amount Securities Value
-------- ---------- -----
Viacom, Inc.,
$ 30,000 7.75%, 6/1/05 $ 30,359
Wal Mart Stores, Inc.:
300,000 6.50%, 6/1/03 297,123
90,000 6.875%, 8/10/09 87,762
Walt Disney Co.:
100,000 6.375%, 3/30/01 99,734
100,000 6.75%, 3/30/06 97,865
------------
9,435,953
------------
Utility - 2.9%
Baltimore Gas & Electric Co,
300,000 8.375%, 8/15/01 306,802
Chesapeake & Potomac Telephone,
200,000 7.125%, 1/15/02 199,741
Columbia Energy Group,
100,000 7.62%, 11/28/25 91,726
Consolidated Edison,
100,000 6.45%, 12/1/07 94,190
Consolidated Natural Gas,
200,000 6.625%, 12/1/08 185,832
GTE North, Inc.,
100,000 5.65%, 11/15/08 88,886
GTE South, Inc.,
200,000 7.25%, 8/1/02 200,382
Lucent Technologies,
100,000 5.50%, 11/15/08 89,017
National Rural Utilities Corp.,
100,000 5.75%, 11/1/08 89,965
Pacific Gas and Electric,
100,000 6.25%, 8/1/03 97,231
Potomac Electric Power,
100,000 6.25%, 10/15/07 96,156
Public Service Co. of Colorado,
100,000 6.00%, 4/15/03 96,745
Southern California Edison,
200,000 6.375%, 1/15/06 190,301
Southwestern Bell,
200,000 7.625%, 3/1/23 190,980
US West Communications,
500,000 6.875%, 9/15/33 417,255
Virginia Electric Power,
100,000 7.625%, 7/1/07 100,158
See Notes to Financial Statements.
15
<PAGE>
U.S. Bond Index Portfolio
Schedule of Portfolio Investments December 31, 1999
Principal
Amount Securities Value
-------- ---------- -----
Wisconsin Electric Power,
$ 500,000 7.25%, 8/1/04 $ 502,412
Worldcom, Inc.,
150,000 6.40%, 8/15/05 144,277
------------
3,182,056
------------
Total Corporate Debt Non-Convertible
(Cost $21,602,184) 20,479,164
------------
Asset Backed
Securities - 1.9%
American Express Credit Card,
50,000 5.95%, 12/15/06 48,158
Chase Credit Card Master Trust,
100,000 6.66%, 1/15/07 98,363
Chemical Master Credit Card Trust,
200,000 7.09%, 2/15/09 199,731
Citibank Credit Card Master Trust,
250,000 6.65%, 11/15/06 245,756
First Union Corp,
100,000 6.56%, 11/18/08 94,647
First Union Lehman Brothers
Commercial Mortgage Trust,
150,000 7.184%, 9/15/08 149,234
Fleet Credit Card Master Trust,
40,000 6.90%, 4/16/07 39,905
LB Commercial Conduit
Mortgage Trust:
150,000 6.78%, 4/15/09 143,111
149,373 7.105%, 10/15/32 148,081
MBNA Master Credit Card Trust:
100,000 6.40%, 1/18/05 99,032
150,000 6.60%, 4/16/07 147,752
50,000 5.90%, 8/15/11 45,568
100,000 7.00%, 2/15/12 98,080
Morgan Stanley Capital:
180,925 6.34%, 11/15/07 175,022
100,000 7.11%, 7/15/09 97,376
Peco Energy Transition Trust,
50,000 6.13%, 3/1/09 46,038
West Penn Funding LLC,
250,000 6.98%, 12/26/08 247,489
------------
Total Asset Backed Securities
(Cost $2,161,271) 2,123,343
Principal
Amount Securities Value
-------- ---------- -----
Foreign Debt - 3.9%
Finance - 2.0%
Abbey National, PLC,
$ 50,000 6.69%, 10/17/05 $ 47,958
Asian Development Bank,
100,000 6.50%, 10/21/02 98,947
British Gas Finance Inc.,
100,000 6.625%, 6/1/18 88,521
InterAmerican Development Bank:
50,000 6.125%, 10/4/02 49,370
100,000 6.50%, 10/20/04 98,374
300,000 6.625%, 3/7/07 293,399
1,500,000 6.375%, 10/22/07 1,439,490
Korea Development Bank,
75,000 7.125%, 4/22/04 73,196
Santander Financial Issuances,
20,000 7.00%, 4/1/06 19,266
------------
2,208,521
------------
Foreign Government - 1.7%
Canada:
50,000 6.375%, 11/30/04 49,183
100,000 5.25%, 11/5/08 89,033
Kingdom of Sweden,
220,000 12.00%, 2/1/10 296,419
Malaysia,
10,000 8.75%, 6/1/09 10,518
Manitoba Province,
200,000 5.50%, 10/1/08 178,204
Province of Ontario,
100,000 7.375%, 1/27/03 101,502
Province of Quebec:
200,000 7.00%, 1/30/07 196,784
50,000 5.75%, 2/15/09 44,384
500,000 7.125%, 2/9/24 464,240
Republic of Chile,
10,000 6.875%, 4/28/09 9,288
Republic of Finland:
50,000 7.875%, 7/28/04 52,250
200,000 5.875%, 2/27/06 189,355
Republic of Ireland,
100,000 7.875%, 12/1/01 102,391
Republic of Korea,
50,000 8.875%, 4/15/08 52,611
------------
1,836,162
See Notes to Financial Statements.
16
<PAGE>
U.S. Bond Index Portfolio
Schedule of Portfolio Investments December 31, 1999
Principal
Amount Securities Value
-------- ---------- -----
Industrial - 0.2%
Amoco Canada,
$ 100,000 7.25%, 12/1/02 $ 101,053
Andina de Fomento Corp.,
10,000 7.75%, 3/1/04 10,012
Hydro-Quebec,
100,000 8.40%, 1/15/22 106,622
------------
217,687
------------
Total Foreign Debt (Cost $4,455,968) 4,262,370
------------
Medium-Term Notes - 2.2%
FNMA
250,000 6.25%, 11/15/02 247,773
500,000 6.50%, 8/15/04 493,571
300,000 6.94%, 3/19/07 289,642
500,000 6.96%, 4/2/07 493,956
1,000,000 6.00%, 5/15/08 (TBA) 936,121
------------
Total Medium-Term Notes
(Cost $2,578,171) 2,461,063
------------
U.S. Government and Agency Obligations - 39.5%
FGLMC - 0.8%
373,471 7.00%, 12/1/26 361,668
195,310 7.50%, 5/1/27 193,569
131,192 7.00%, 6/1/27 127,046
76,920 7.50%, 6/1/27 76,235
143,078 7.50%, 7/1/27 141,803
------------
900,321
------------
FHLB - 1.1%
250,000 5.875%, 9/17/01 247,341
1,000,000 5.125%, 9/15/03 946,560
------------
1,193,901
------------
FHLMC - 4.3%
1,400,000 6.625%, 9/15/09 1,358,636
363,895 5.50%, 11/1/13 338,347
1,000,009 6.50%, 12/1/14 970,802
1,000,000 6.50%, 11/1/23 942,497
266,228 7.50%, 5/1/24 263,856
916,078 7.00%, 12/1/24 887,125
------------
4,761,263
Principal
Amount Securities Value
-------- ---------- -----
FNCL - 9.5%
$ 328,413 8.00%, 7/1/27 $ 331,290
60,444 6.50%, 7/1/28 56,991
844,023 6.50%, 8/1/28 795,810
991,569 6.00%, 9/1/28 906,968
1,034,410 6.50%, 10/1/28 975,323
965,532 6.00%, 2/1/29 884,267
972,251 6.50%, 2/1/29 916,714
1,972,224 6.00%, 7/1/29 1,806,228
2,349,163 6.50%, 7/1/29 2,213,594
1,622,916 6.50%, 8/1/29 1,530,211
------------
10,417,396
------------
FNMA - 14.0%
100,000 5.375%, 3/15/02 97,623
1,000,000 4.75%, 11/14/03 931,976
1,000,000 7.00%, 9/1/06 (TBA) 987,497
2,000,000 6.50%, 11/1/07 (TBA) 1,938,120
1,000,000 6.00%, 4/1/08 (TBA) 948,747
500,000 5.25%, 1/15/09 441,040
250,000 6.625%, 9/15/09 242,964
1,278,320 6.00%, 10/1/09 1,213,871
325,966 7.00%, 6/1/12 322,518
145,636 7.00%, 7/1/12 144,096
4,000,000 7.00%, 9/1/21 (TBA) 3,864,990
1,000,000 7.50%, 9/1/21 (TBA) 987,810
1,000,000 8.00%, 9/1/21 (TBA) 1,006,247
269,005 8.00%, 12/1/21 271,362
1,000,000 6.50%, 4/1/23 (TBA) 941,872
245,057 7.50%, 1/1/24 242,568
314,714 8.50%, 12/1/25 323,185
500,075 7.50%, 4/1/28 494,994
------------
15,401,480
------------
GNMA - 8.9%
2,000,000 7.00%, 9/1/21 (TBA) 1,932,494
2,000,000 7.50%, 9/1/21 (TBA) 1,977,182
678,777 8.00%, 7/15/22 686,272
213,332 9.00%, 1/15/23 223,577
1,000,000 6.50%, 6/25/23 (TBA) 938,435
1,000,000 7.00%, 6/25/23 (TBA) 964,997
1,188,230 6.50%, 11/15/23 1,116,566
996,820 6.00%, 9/15/29 907,937
999,450 8.50%, 11/15/29 1,029,538
------------
9,776,998
See Notes to Financial Statements.
17
<PAGE>
U.S. Bond Index Portfolio
Schedule of Portfolio Investments December 31, 1999
Principal
Amount Securities Value
-------- ---------- -----
Other - 0.9%
FFCB
$ 1,000,000 5.58%, 9/11/03 $ 959,840
------------
Total U.S. Government and Agency Obligations
(Cost $44,206,895) 43,411,199
------------
U.S. Treasury
Securities - 31.7%
U.S. Treasury Notes - 20.6%
3,100,000 6.375%, 5/15/00 3,108,720
1,000,000 6.25%, 5/31/00 1,002,188
1,000,000 5.875%, 6/30/00 1,001,563
500,000 5.75%, 11/15/00 498,907
800,000 5.25%, 1/31/01 793,500
2,500,000 5.625%, 2/28/01 2,485,938
1,000,000 6.625%, 6/30/01 1,006,250
150,000 6.625%, 7/31/01 151,031
2,000,000 6.25%, 1/31/02 2,000,626
500,000 6.00%, 7/31/02 497,188
7,800,000 5.75%, 8/15/03 7,639,125
2,150,000 7.25%, 5/15/04 2,216,517
200,000 6.50%, 10/15/06 199,500
52,478 3.625%, 7/15/02 (TIPS) 51,986
------------
22,653,039
------------
U.S.Treasury Bonds - 11.1%
540,000 9.25%, 2/15/16 667,069
650,000 8.125%, 8/15/19 740,797
5,400,000 8.75%, 8/15/20 6,544,125
80,000 8.125%, 5/15/21 91,750
500,000 8.125%, 8/15/21 573,907
600,000 8.00%, 11/15/21 680,813
Principal
Amount/
Shares Securities Value
-------- ---------- -----
$ 800,000 7.25%, 8/15/22 $ 843,750
550,000 7.625%, 11/15/22 603,453
500,000 6.875%, 8/15/25 509,219
200,000 6.50%, 11/15/26 195,000
287,000 6.625%, 2/15/27 284,309
500,000 6.375%, 8/15/27 480,157
------------
12,214,349
------------
Total U.S. Treasury Securities
(Cost $35,878,291) 34,867,388
------------
Short Term
Instrument - 16.2%
17,873,861 Institutional Cash Management
(Cost $17,873,861) 17,873,861
------------
Total Investments
(Cost $128,756,641) 114.0% $125,478,388
Liabilities in Excess of
Other Assets (14.0) (15,409,567)
----- ------------
Net Assets 100.0% $110,068,821
===== ============
- ----------
Abbreviations
FFCB - Federal Farm Credit Bank
FGLMC - Federal Government Loan Mortgage Company
FHLB - Federal Home Loan Bank
FHLMC - Federal Home Loan Mortgage Company
FNCL - Fannie Mae Conventional Loan
FNMA - Federal National Mortgage Association
GNMA - Government National Mortgage Association
TBA - To Be Announced
TIPS - Treasury Inflation Protected Security
See Notes to Financial Statements.
18
<PAGE>
U.S. Bond Index Portfolio
Statement of Assets and Liabilities
As of
December 31, 1999
-----------------
Assets
Investments at Value (Cost of $128,756,641) $ 125,478,388
Receivable for Securities Sold 15,212,435
Interest Receivable 1,641,469
Other Receivables 1,986
------------------
Total Assets 142,334,278
------------------
Liabilities
Payable for Securities Purchased 32,238,028
Due to Bankers Trust 14,212
Accrued Expenses and Other 13,217
------------------
Total Liabilities 32,265,457
------------------
Net Assets $ 110,068,821
==================
Composition of Net Assets
Paid-in Capital $ 113,347,074
Net Unrealized Depreciation on Investments (3,278,253)
------------------
Net Assets $ 110,068,821
==================
See Notes to Financial Statements.
19
<PAGE>
U.S. Bond Index Portfolio
Statement of Operations
<TABLE>
<CAPTION>
For the year ended
December 31, 1999
-----------------
<S><C>
Investment Income
Dividends $ 797,114
Interest 4,361,202
--------------
Total Investment Income 5,158,316
--------------
Expenses
Advisory Fees 120,330
Administration and Services Fees 43,596
Professional Fees 20,031
Trustees Fees 5,735
Miscellaneous 2,341
--------------
Total Expenses 192,033
Less: Fee Waivers or Expense Reimbursements (104,491)
--------------
Net Expenses 87,542
--------------
Net Investment Income 5,070,774
Realized and Unrealized Loss on Investments
Net Realized Loss from Investment Transactions (694,632)
Net Change in Unrealized Appreciation/Depreciation on Investments (4,875,488)
--------------
Net Realized and Unrealized Loss on Investments (5,570,120)
--------------
Net Decrease in Net Assets from Operations $ (499,346)
==============
</TABLE>
See Notes to Financial Statements.
20
<PAGE>
U.S. Bond Index Portfolio
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the years ended December 31,
1999 1998
---- ----
<S><C>
Increase (Decrease) in Net Assets from:
Net Investment Income $ 5,070,774 $ 2,656,754
Net Realized Gain (Loss) from Investment Transactions (694,632) 208,459
Net Change in Unrealized Appreciation/Depreciation
on Investments (4,875,488) 879,816
--------------- ---------------
Net Increase (Decrease) in Net Assets from Operations (499,346) 3,745,029
--------------- ---------------
Capital Transactions
Proceeds from Capital Invested 83,089,901 40,754,986
Value of Capital Withdrawn (36,716,446) (11,163,198)
--------------- ---------------
Net Increase in Net Assets from Capital Transactions 46,373,455 29,591,788
--------------- ---------------
Total Increase in Net Assets 45,874,109 33,336,817
Net Assets
Beginning of Year 64,194,712 30,857,895
--------------- ---------------
End of Year $ 110,068,821 $ 64,194,712
=============== ===============
</TABLE>
See Notes to Financial Statements.
21
<PAGE>
U.S. Bond Index Portfolio
Financial Highlights
Contained below are selected ratios to average net assets and other supplemental
data for the periods indicated for the U.S. Bond Index Portfolio.
<TABLE>
<CAPTION>
For the period
For the years ended June 10, 1997(1)
December 31, through
1999 1998 December 31, 1997
---- ---- -----------------
<S><C>
Supplemental Data and Ratios:
Net Assets, End of Period (000s omitted) $110,069 $64,195 $30,858
Ratios to Average Net Assets:
Net Investment Income 5.82% 6.02% 6.31%(2)
Expenses After Waivers 0.10% 0.10% 0.10%(2)
Expenses Before Waivers 0.22% 0.29% 0.28%(2)
Decrease Reflected in Above Expense
Ratios Due to Fee Waivers or Expense
Reimbursements 0.12% 0.19% 0.18%(2)
Portfolio Turnover Rate 224% 82% 79%
</TABLE>
- ----------
(1) Commencement of Operations.
(2) Annualized.
See Notes to Financial Statements.
22
<PAGE>
U.S. Bond Index Portfolio
Notes to Financial Statements
Note 1--Organization and Significant
Accounting Policies
A. Organization The U.S. Bond Index 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 July 1, 1996 as an
unincorporated trust under the laws of New York, and began operations on June
10, 1997. 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 valued each business day by independent pricing
services approved by the Trustees. Short-term obligations with remaining
maturities of 60 days or less are valued at amortized cost which, with accrued
interest, approximates fair market value. Securities for which quotations are
not readily available are stated at fair value as determined in good faith under
procedures established by and under the general supervision of the Board of
Trustees.
C. Security Transactions and Interest 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. Realized gains and losses from the security
transactions are recorded on the identified cost 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.
D. TBA Purchase Commitments
The U.S. Bond Index Portfolio may enter into TBA (to be announced) purchase
commitments to purchase securities for a fixed price at a future date, typically
not exceeding 45 days. TBA purchase commitments may be considered securities in
themselves, and involve a risk of loss if the value of the security to be
purchased declines prior to settlement date. This risk is in addition to the
risk of decline in the value of the Portfolio's other assets.
E. Federal Income Taxes
The Portfolio is considered a Partnership under 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 the
Bankers Trust Company ("Bankers Trust"), an indirect wholly owned subsidiary of
Deutsche Bank AG. Under this agreement, Bankers Trust provides administrative,
custody, transfer agency and shareholder services to the Portfolio in return for
a fee computed daily and paid monthly at an annual rate of .05% 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 .15% of the Portfolio's average daily net assets.
Bankers Trust has contractually agreed through April 30, 2000 to waive its fees
and reimburse expenses of the Portfolio, to the extent necessary, to limit all
expenses to .10% of the average daily net assets of the Portfolio.
The Portfolio may invest in the Institutional Cash Management Fund (the "Cash
Management Fund"), an open-end management investment company managed by Bankers
Trust. The Cash Management Fund is offered as a cash management option to the
Portfolio and other accounts managed by Bankers Trust. Distributions from the
Cash Management Fund to the Portfolio as of December 31, 1999 amounted to
$797,114 and are included in dividend income.
23
<PAGE>
U.S. Bond Index Portfolio
Notes to Financial Statements
At December 31, 1999, the Portfolio was a participant with other affiliated
entities in a revolving credit facility in the amount of $150,000,000, which
expires April 29, 2000. A commitment fee of .10% per annum on the average daily
amount of the available commitment is payable on a quarterly basis and
apportioned equally among all participants. No amounts were drawn down or
outstanding for this fund under the credit facility for the year ended December
31, 1999.
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 December 31, 1999, were
$238,057,298 and $182,919,409, respectively. For federal income tax purposes,
the tax basis of investments held at December 31, 1999 was $128,792,657. The
aggregate gross unrealized appreciation was $8,012 and aggregate gross
unrealized depreciation for all investments was $3,322,281 as of December 31,
1999.
24
<PAGE>
U.S. Bond Index Portfolio
Report of Independent Accountants
To the Trustees and Holders of Beneficial Interest of
U.S. Bond Index Portfolio
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of 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 U.S. Bond Index Portfolio
(hereafter referred to as the "Portfolio") at December 31, 1999, 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 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 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 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
December 31, 1999 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Baltimore, Maryland
February 11, 2000
25
<PAGE>
U.S. Bond Index Fund
Proxy Results (unaudited)
For the year ended December 31, 1999, the Bankers Trust Advisor Funds
shareholders voted on the following proposals at the annual meeting of
shareholders on October 8, 1999, or as adjourned. The description of each
proposal and number of shares voted are as follows:
1. To elect the Bankers Trust Advisor Funds Board of Trustees.
Shares Shares Voted
Voted Withheld
For Authority
--------- ------------
Mr. Charles P. Biggar 3,644,595 2,432
Mr. S. Leland Dill 3,644,595 2,432
Mr. Richard T. Hale 3,644,595 2,432
Mr. Bruce E. Langton 3,644,595 2,432
Mr. Philip Saunders, Jr. 3,644,595 2,432
Mr. Harry Van Benschoten 3,644,595 2,432
Dr. Martin J. Gruber 3,644,595 2,432
Dr. Richard J. Herring 3,644,595 2,432
2. To approve the New Investment Advisory Agreement with Bankers Trust Company.
For Against Abstain
-------- ------- --------
3,647,027 -- --
3. To approve the New Investment Advisory Agreement with Morgan Grenfell, Inc.
For Against Abstain
-------- ------- --------
3,647,027 -- --
4. To approve the New Investment Sub-advisory Agreement with Morgan Grenfell
Investment Services Ltd.
For Against Abstain
-------- ------- --------
3,647,027 -- --
5. To ratify the selection of PricewaterhouseCoopers LLP as the independent
accountants of the Fund and its corresponding Portfolio.
For Against Abstain
-------- ------- --------
3,647,027 -- --
26
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<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.
Institutional U.S. Bond Index Fund CUSIP #05576L700
BT Advisor Funds 511ANN (12/99)
Distributed by:
ICC Distributors, Inc.
