o BT ADVISOR FUNDS o
U.S. BOND INDEX FUND
SEMI-ANNUAL REPORT
------------------
JUNE o 1998
<PAGE>
US Bond Index Fund
Table of Contents
Letter to Shareholders 3
U.S. Bond Index Fund
Statement of Assets and Liabilities 5
Statement of Operations 5
Statements of Changes in Net Assets 6
Financial Highlights 7
Notes to Financial Statements 8
U.S. Bond Index Portfolio
Statement of Net Assets 10
Statement of Operations 13
Statements of Changes in Net Assets 14
Financial Highlights 14
Notes to Financial Statements 15
--------------------
The Fund is not insured by the FDIC and is not a deposit, obligation of or
guaranteed byBankers Trust Company. The Fund is subject to investment risks,
including possible loss of principal amount invested.
--------------------
2
<PAGE>
U.S. Bond Index Fund
Letter to Shareholders
We are pleased to present you with this semi-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
Overall, the U.S. bond markets posted strong performance for the first half of
1998, with the yield on the 10-year Treasury falling from 5.74% on December 31,
1997 to 5.45% on June 30, 1998. This decrease in yields, which, in turn, caused
appreciation in price, along with the coupon produced a positive return.
Optimism reigned throughout the first quarter over the domestic economy's
ability to sustain growth without inflation. The Federal Reserve Board kept the
Fed Funds target rate steady at 5.5%, where it has been for more than a year.
Policymakers' reluctance to make changes stemmed from ongoing uncertainty over
whether an abundance of positive economic factors will ultimately trigger
inflation or whether domestic growth will slow as a result of the long-term
impact of Asia's financial problems.
During the first quarter of the year, U.S. Treasury yields remained practically
unchanged. The 10-year note closed the quarter at 5.65%, 0.09% lower than its
December 31, 1997 level. The 2-year and 5-year Treasuries were lower by 0.06%
and 0.08% respectively, and the 30-year rose by 0.01%.
A strong dollar, propelled by a deepening Asian crisis, served as a major
catalyst for strong returns and lowering yield levels in the second quarter. The
30-year Treasury fell to its lowest level ever on June 15, 1998, with a yield of
5.57% and closed the semi-annual period at 5.63%, 0.30% lower than its December
31, 1997 level. The markets' perception at the end of the period was that the
Federal Reserve Board is on hold until the effects of the Asian situation become
clearer.
Overall, on a duration-adjusted basis, mortgage-backed securities marginally
outperformed Treasuries for the first half of the year, while corporate bonds
significantly underperformed.
o Corporate bonds came under pressure from a worsening Asian situation as well
as the anticipated effects this region's problems may have both on the U.S.
economy in general and on corporate profit growth in particular. In addition,
a large number of new corporate issues put pressure on yield spreads.
Together, these factors more than wiped out the additional yield that
corporate bonds traditionally offer.
o Mortgage-backed securities also came under pressure, as prepayments increased
and as a number of hedge funds and other leveraged players liquidated their
mortgage positions in response to the rally in the Treasury market. These
factors erased most of their incremental yield over Treasuries, causing
mortgage-backed securities to only marginally outperform.
INVESTMENT REVIEW
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Periods ended June 30, 1998 Cumulative Total Retums
Past 6 Past 1 Since
months year inception
- ---------------------------------------------------------------------------------------
<S><C>
U.S. Bond Index Fund(1)
Institutional Class Shares (inception 6/30/97) 3.94% 10.72% 10.72%
- ---------------------------------------------------------------------------------------
Advisor Class Shares (inception 6/30/97) 3.86% 10.16% 10.16%
- ---------------------------------------------------------------------------------------
Lehman Brothers Aggregate Bond Index(2) 3.93% 10.54% 10.54%
- ---------------------------------------------------------------------------------------
Lipper U.S. Bond Index Funds Average(3) 3.91% 10.29% 10.29%
- ---------------------------------------------------------------------------------------
</TABLE>
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
We believe the bond markets should remain fairly positive through the second
half of the year for several reasons:
o The Asian crisis continues to loom and the U.S. dollar remains strong--a
positive backdrop for inflation to stay low.
o While the Federal Reserve Board reinstituted its tightening bias earlier in
the year, it still seems likely that it will be on hold for a while.
o Japan is facing serious financial troubles, which could impact China and Latin
America in turn. Thus, we expect a continued flight to quality, with U.S.
Treasuries the major beneficiary.
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
- ----------
(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. 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 Analytical Services, Inc. as
falling into the categories indicated. These figures do not reflect sales
charges. 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.
3
<PAGE>
U.S. Bond Index Fund
Letter to Shareholders
Diversification of Portfolio Investments
By Sector as of June 30, 1998
(percentages are based on market value)
(Pie Chart Appears Here -- See Plot Points Below)
Financial 15%
Industrial 15%
Utility 5%
Foreign
Government 3%
U.S. Treasury Securities 20%
Medium-Term Notes 3%
U.S. Government & Agency 39%
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
June 30, 1998
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.
Performance Comparison
Comparison of Change in
Value of a $10,000 Investment
in the U.S. Bond Index Fund -
Institutional Class and
Advisor Class, and the
Lehman Brothers Aggregate
Bond Index since June 30,
1997.
- -----------------------------------------
Total Return for the Period
Ended June 30, 1998
Institutional Advisor
3.94% 3.86%
Since 6/30/97* Since 6/30/97*
10.72% 10.16%
* The Fund's inception date.
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)
<TABLE>
<CAPTION>
US Bond Index Fund-Institutional Class-$11,072 Lehman Aggregate Bond Index-$11,054
<S><C>
6/96 10,000 10,000
9/96 10,338 10,332
12/96 10,652 10,636
3/97 10,807 10,802
6/97 11,072 11,054
</TABLE>
(Graph Appears Here -- See Plot Points Below)
US Bond Index Fund-Advisor Class-$11,016 Lehman Aggregate Bond Index-$11,054
6/97 10,000 10,000
9/97 10,316 10,332
12/97 10,615 10,636
3/98 10,777 10,802
6/98 11,016 11,054
Past performance is not indicative of future performance. The Lehman Brothers
Aggregate Bond Index is unmanaged and investments may not be made in an index.
4
<PAGE>
U.S. Bond Index Fund
Statement of Assets and Liabilities June 30, 1998 (unaudited)
<TABLE>
<S><C>
Assets
Investment in U.S. Bond Index Portfolio, at Value $22,069,267
Due from Bankers Trust, net 83,765
Prepaid Expenses 11,420
-----------
Total Assets 22,164,452
Liabilities
Accrued Expenses 21,725
Dividends Payable 102,805
-----------
Total Liabilities 124,530
-----------
Net Assets $22,039,922
===========
Paid-in Capital $21,300,986
Undistributed Net Investment Income 16,623
Accumulated Net Realized Gain from Investment Transactions 141,857
Net Unrealized Appreciation on Investment 580,456
-----------
Net Assets $22,039,922
===========
Net Asset Value, Offering and Redemption Price Per Share (net assets
divided by shares outstanding)
Institutional Class Shares(1) $ 10.38
===========
Advisor Class Shares(2) $ 10.34
===========
</TABLE>
(1) Net asset value, offering and redemption price per share (based on net
assets of $14,073,796 and 1,355,376 shares of beneficial interest
outstanding and .001 par value, unlimited number of shares of beneficial
interest authorized).
(2) Net asset value, offering and redemption price per share (based on net
assets of $7,966,126 and 770,568 shares of beneficial interest outstanding
and .001 par value, unlimited number of shares of beneficial interest
authorized).
Statement of Operations For the six months ended June 30, 1998 (unaudited)
<TABLE>
<S><C>
Investment Income
Income Allocated from U.S. Bond Index Portfolio, net $472,926
--------
Expenses
Administration and Services Fees
Institutional Class 11,860
Advisor Class 6,248
Shareholder Reports 6,325
Institutional Class 5,053
Advisor Class 3,622
Professional Fees 18,924
Registration Fees 10,984
Trustees Fees 7,913
Insurance 2,453
Miscellaneous 3,342
--------
Total Expenses 76,724
Less: Expenses Absorbed by Bankers Trust
Institutional Class (63,696)
Advisor Class (3,754)
--------
Net Expenses 9,274
--------
Net Investment Income 463,652
--------
Realized and Unrealized Gain on Investments
Net Realized Gain from Investment Transactions 5,839
Net Change in Unrealized Appreciation of Investment 154,192
--------
Net Realized and Unrealized Gain on Investments 160,031
--------
Net Increase in Net Assets from Operations $623,683
========
</TABLE>
See Notes to Financial Statements on Pages 8 and 9
5
<PAGE>
U.S. Bond Index Fund
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the period
For the June 30, 1997(2)
six months ended through
June 30, 1998(1) December 31, 1997
----------------- -----------------
<S><C>
Increase (Decrease) in Net Assets from:
Operations
Net Investment Income $ 463,652 $ 619,624
Net Realized Gain from Investment Transactions 5,839 224,635
Net Change in Unrealized Appreciation/Depreciation on Investment 154,192 426,264
----------- ----------
Net Increase in Net Assets from Operations 623,683 1,270,523
----------- ----------
Distributions to Shareholders
Net Investment Income
Institutional Class (306,609) (602,199)
Advisor Class (155,282) (2,563)
Net Realized Gain from Investment Transactions
Institutional Class -- (87,690)
Advisor Class -- (927)
----------- ----------
Total Distributions (461,891) (693,379)
----------- ----------
Capital Transactions in Shares of Beneficial Interest
Net Increase Resulting from Institutional Class Shares 5,840,668 7,543,166
Net Increase Resulting from Advisor Class Shares 7,676,439 240,613
----------- ----------
Net Increase from Capital Transactions in Shares of Beneficial Interest 13,517,107 7,783,779
----------- ----------
Total Increase in Net Assets 13,678,899 8,360,923
Net Assets
Beginning of Period 8,361,023 100
----------- ----------
End of Period (includes undistributed net investment income of
$16,623 and $14,862, respectively) $22,039,922 $8,361,023
=========== ==========
</TABLE>
- ----------
(1) Unaudited
(2) Commencement of Operations.
See Notes to Financial Statements on Pages 8 and 9
6
<PAGE>
U.S. Bond Index Fund
Financial Highlights
Contained below are selected data for a share outstanding, total investment
return, other supplemental data and ratios to average net assets for the period
indicated for the U.S. Bond Index Fund.
<TABLE>
<CAPTION>
Institutional Class Shares Advisor Class Shares
----------------------------------------- -----------------------------------------
For the six For the period For the six For the period
months ended June 30, 1997(2) through months ended June 30, 1997(2) through
June 30, 1998(1) December 31, 1997 June 30, 1998(1) December 31, 1997
---------------- ------------------------ ---------------- ------------------------
<S><C>
Per Share Operating Performance:
Net Asset Value, Beginning of Period $ 10.29 $ 10.00 $ 10.26 $ 10.00
-------- -------- -------- --------
Income from Investment Operations
Net Investment Income 0.31 0.33 0.30 0.32
Net Realized and Unrealized Gain on Investment
Transactions 0.09 0.32 0.08 0.29
-------- -------- -------- --------
Total from Investment Operations 0.40 0.65 0.38 0.61
Distributions to Shareholders
Net Investment Income (0.31) (0.32) (0.30) (0.31)
Net Realized Gain from Investment Transactions -- (0.04) -- (0.04)
-------- -------- -------- --------
Total Distributions (0.31) (0.36) (0.30) (0.35)
-------- -------- -------- --------
Net Asset Value, End of Period $ 10.38 $ 10.29 $ 10.34 $ 10.26
======== ======== ======== ========
Total Investment Return 3.94% 6.52% 3.86% 6.15%
Supplemental Data and Ratios:
Net Assets, End of Period (000s omitted) $ 14,074 $ 8,119 $ 7,966 $ 242
Ratios to Average Net Assets:
Net Investment Income 6.05%(3) 6.32%(3) 5.81%(3) 6.31%(3)
Expenses, Including expenses of the
U.S. Bond Index Portfolio 0.15%(3) 0.15%(3) 0.35%(3) 0.35%(3)
Decrease Reflected in Above Expense Ratio Due
to Absorption of Expenses by Bankers Trust 1.51%(3) 0.71%(3) 0.40%(3) 14.53%(3)
</TABLE>
- ---------
(1) Unaudited
(2) Commencement of operations.
(3) Annualized.
See Notes to Financial Statements on Pages 8 and 9
7
<PAGE>
U.S. Bond Index Fund
Notes to Financial Statements (unaudited)
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 U.S. Bond Index Fund offers two classes of shares to investors:
Institutional Class and Advisor Class shares (the "Classes"). Both classes of
shares have identical rights to earnings, assets and voting privileges, except
that each class has its own expenses directly attributable to a particular class
and exclusive voting rights with respect to matters affecting a single class.
The Fund commenced operations and began offering shares of beneficial interest
of both Classes on June 30,1997.
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 such investment in the Portfolio reflects the Fund's proportionate
interest in the net assets of the Portfolio. At June 30, 1998, the Fund's
proportionate interest in net assets of the Portfolio was approximately 48%.
The financial statements of the Portfolio, including the Statement of Net
Assets, are contained elsewhere in this report.
B. 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. Net
investment income is allocated daily to each class of shares based upon the
relative proportion of net assets.
C. Dividends
It is the Fund's policy to declare dividends daily and distribute dividends
monthly to shareholders from net investment income. Dividends 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, will be made
annually.
D. Federal Income Taxes
It is the Fund's policy to comply with the requirements of the Internal Revenue
Code and distribute substantially 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 the
timing and characterization of certain income and capital gain 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 and Classes. Expenses directly attributable to each Fund or Class are
charged to that Fund or Class, while expenses that are attributable to the Trust
are allocated among the Funds.
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 .20% of the average daily net assets of each Class.
The Fund was owed $83,765 in relation to waived fees and reimbursed expenses at
June 30, 1998, net of Administration and Service Fees of $18,108.
On September 30, 1996, 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 1940 Act, Edgewood, and previously
Signature, 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-month period ended June 30, 1998, there were no reimbursable expenses
incurred under this agreement. The Fund does not intend to charge 12b-1 fees in
the future.
Certain officers of the Fund are also directors, and/or employees of Edgewood.
None of the officers so affiliated received compensation from the Fund.
Effective August 11, 1998, ICC Distributors, Inc. will replace Edgewood as
distributor of the Trust.
Bankers Trust has voluntarily undertaken to waive its fees and reimburse
expenses of each Class, to the extent necessary, to limit all expenses as
follows: U.S. Bond Index Fund Institutional Class of Shares to .05% of the
average daily net assets of the Class, excluding expenses of the Portfolio and
.15% of the average daily net assets of the Class, including expenses of the
Portfolio; and U.S. Bond Index Fund Advisor Class of Shares to .25% of the
average daily net assets of the Class, excluding expenses of the Portfolio and
.35% of the average daily net assets of the Class, including expenses of the
Portfolio. For the six-month period ended June 30, 1998, expenses have been
reduced by $63,696 and $3,754 for the U.S. Bond Index Institutional Class and
Advisor Class, respectively.
The Fund 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 commitment fee of .07% per annum on the average
daily amount of the available commitment is payable on a quarterly basis and
apportioned equally amongst 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 June 30, 1998.
8
<PAGE>
U.S. Bond Index Fund
Notes to Financial Statements (continued) (unaudited)
Note 3--Shares of Beneficial Interest
At June 30, 1998, there were an unlimited number of shares of beneficial
interest authorized. Transactions in shares of beneficial interest were as
follows:
<TABLE>
<CAPTION>
Institutional Class Shares(1) Advisor Class Shares(1)
----------------------------- -----------------------
For the period For the period
ended December 31, 1997 ended December 31, 1997
----------------------------- -----------------------
Shares Amount Shares Amount
----------- --------------- -------- -------------
<S><C>
Sold 2,756,980 $ 27,731,959 23,281 $ 237,843
Reinvested 63,919 653,087 270 2,770
Redeemed (2,031,771) (20,841,880) -- --
----------- ------------- ------- -------------
Net Increase 789,128 $ 7,543,166 23,551 $ 240,613
=========== ============= ======= =============
<CAPTION>
For the six-month period For the six-month period
ended June 30, 1998 ended June 30, 1998
----------------------------- -----------------------
Shares Amount Shares Amount
----------- --------------- -------- -------------
<S><C>
Sold 545,553 $ 5,627,320 746,963 $ 7,676,394
Reinvested 23,261 240,029 9,126 93,738
Redeemed (2,571) (26,681) (9,077) (93,693)
----------- ------------- ------- -------------
Net Increase 566,243 $ 5,840,668 747,013 $ 7,676,439
=========== ============= ======= =============
</TABLE>
- ---------
(1) Commencement of operations for the U.S. Bond Index Institutional Class and
Advisor Class was June 30, 1997.
Note 4--Subsequent Event
Effective July 10, 1998, the Fund's Advisor Class was closed and all Advisor
Class shareholders were exchanged into the Fund's Institutional Class based on a
1 to .9952 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.
9
<PAGE>
U.S. Bond Index Portfolio
Statement of Net Assets June 30, 1998 (unaudited)
<TABLE>
<CAPTION>
Principal
Amount Security Value
--------- -------- -----
<S><C>
CORPORATE DEBT
NON-CONVERTIBLE - 24.05%
FINANCIAL - 9.80%
$ 225,000 American General Finance,
7.25%, 5/15/05 $ 238,279
200,000 BankAmerica Corp.,
7.125%, 5/01/06 210,806
260,000 BankBoston Corp.,
6.38%, 8/11/00 262,714
100,000 Chase Manhattan Corp.,
10.00%, 6/15/99 103,788
300,000 Chase Manhattan Corp.,
7.125%, 6/15/09 316,688
325,000 Chrysler Financial Corp.,
6.11%, 7/28/99 325,835
100,000 First Union Corp.,
7.50%, 7/15/06 107,732
200,000 Ford Motor Credit,
7.20%, 6/15/07 212,722
100,000 GMAC,
9.625%, 5/15/00 106,343
200,000 Grand Metro,
6.50%, 9/15/99 201,205
300,000 IBM Credit Corp.,
5.875%, 8/25/99 300,726
300,000 Interamerican Development Bank,
6.625%, 3/07/07 315,613
300,000 Lehman Brothers Holdings - Series E,
6.30%, 8/11/99 301,248
300,000 Merrill Lynch & Co., Inc.,
6.64%, 9/19/02 306,564
100,000 NationsBank Corp.,
6.50%, 3/15/06 102,297
200,000 Norwest Corp.,
6.75%, 6/15/07 208,218
300,000 PNC Funding Corp.,
6.875%, 7/15/07 313,172
300,000 Salomon Smith Barney Holdings,
5.625%, 11/15/98 299,707
100,000 Texaco Capital, Inc.,
8.50%, 2/15/03 109,969
110,000 U.S. Bancorp,
8.125%, 5/15/02 117,430
------------
4,461,056
------------
INDUSTRIAL - 9.69%
100,000 Conagra, Inc.,
7.125%, 10/01/26 106,919
200,000 Dayton Hudson Corp.,
9.75%, 7/01/02 225,487
300,000 Dillard's, Inc.,
8.00%, 1/15/99 303,528
400,000 du Pont (E. I.) de Nemours & Co.,
8.125%, 3/15/04 441,640
300,000 Federated Department Stores,
7.45%, 7/15/17 323,018
200,000 General Motors,
8.80%, 3/01/21 248,546
300,000 Hanson Overseas,
6.75%, 9/15/05 308,211
200,000 Hertz Corp.,
7.00%, 7/15/03 205,233
100,000 ICI Wilmington,
6.95%, 9/15/04 103,908
150,000 J. Seagram & Sons,
9.65%, 8/15/18 198,477
200,000 Lockheed Martin Corp.,
7.25%, 5/15/06 212,513
300,000 McDonald's Corp.,
8.875%, 4/01/11 373,202
100,000 Norfolk Southern Corp.,
6.95%, 5/01/02 102,842
300,000 Potash Corp.,
7.125%, 6/15/07 312,564
300,000 Sears, Roebuck & Co.,
8.30%, 10/26/04 332,163
100,000 Sony Corporation,
6.125%, 3/04/03 100,233
300,000 Wal-Mart Stores, Inc.,
6.50%, 6/01/03 306,687
100,000 Walt Disney Co.,
6.375%, 3/30/01 101,339
100,000 Walt Disney Co.,
6.75%, 3/30/06 104,654
------------
4,411,166
------------
UTILITY - 4.56%
300,000 Baltimore Gas & Electric Co.,
8.375%, 8/15/01 319,553
100,000 Consolidated Edison,
6.45%, 12/01/07 101,603
200,000 Consolidated Natural Gas,
6.625%, 12/01/08 208,780
200,000 GTE South, Inc.,
7.25%, 8/01/02 207,512
100,000 Potomac Electric Power,
6.25%, 10/15/07 101,881
200,000 Southern California Edison,
6.375%, 1/15/06 202,085
200,000 Southwestern Bell,
7.625%, 3/01/23 210,533
</TABLE>
See Notes to Financial Statements on Page 15
10
<PAGE>
U.S. Bond Index Portfolio
Statement of Net Assets June 30, 1998 (unaudited)
<TABLE>
<CAPTION>
Principal
Amount Security Value
--------- -------- -----
<S><C>
$ 200,000 U.S. West Communications,
6.875%, 9/15/33 $ 193,458
500,000 Wisconsin Electric Power,
7.25%, 8/01/04 530,902
------------
2,076,307
------------
TOTAL CORPORATE DEBT NON-CONVERTIBLE
(Cost $10,698,780) 10,948,527
------------
FOREIGN DEBT - 2.00%
Foreign Government - 1.90%
100,000 Hydro-Quebec,
8.40%, 1/15/22 122,446
220,000 Kingdom of Sweden,
12.00%, 2/01/10 328,455
200,000 Quebec Province,
7.00%, 1/30/07 211,731
200,000 Republic of Finland,
5.875%, 2/27/06 200,562
------------
863,194
------------
Industrial - 0.10%
50,000 Celulosa Arauco Constitucion,
7%, 12/15/07 47,297
------------
TOTAL FOREIGN DEBT
(Cost $810,059) 910,491
------------
MEDIUM-TERM NOTES - 4.09%
FNMA,
500,000 6.96%, 4/02/07 537,736
300,000 6.94%, 3/19/08 309,046
100,000 6.00%, 5/15/08 1,014,063
------------
TOTAL MEDIUM-TERM NOTES
(Cost $ 1,828,295) 1,860,845
------------
U.S. GOVERNMENT & AGENCIES - 28.27%
FHLMC - 9.28%,
450,724 7.50%, 5/01/24 461,994
1,317,184 7.00%, 12/01/24 1,338,062
477,309 7.00%, 12/01/26 484,574
509,626 7.50%, 5/01/27 522,245
189,462 7.00%, 6/01/27 192,346
159,980 7.50%, 6/01/27 163,941
253,507 7.50%, 7/01/27 259,784
776,020 8.00%, 7/01/27 803,289
FNMA - 12.43%,
1,721,292 6.00%, 10/01/09 1,711,274
484,602 7.00%, 6/01/12 493,505
218,782 7.00%, 7/01/12 222,801
100,000 7.00%, 9/01/21 1,015,305
100,000 7.50%, 9/01/21 1,026,867
472,271 8.00%, 12/01/21 489,095
665,010 8.50%, 12/01/25 697,010
GNMA - 6.56%,
1,162,743 8.00%, 7/15/22 1,209,415
264,820 9.00%, 1/15/23 284,121
1,488,641 6.50%, 11/15/23 1,491,857
------------
Total U.S. Government & Agencies
(Cost $12,629,978) 12,867,485
------------
U.S. TREASURY SECURITIES - 34.48%
U. S. Treasury Bonds - 2.82%,
650,000 8.125%, 8/15/19 839,106
100,000 7.125%, 2/15/23 118,328
287,000 6.625%, 2/15/27 324,176
------------
U. S. Treasury Notes - 31.66%,
600,000 6.375%, 5/15/00 608,998
500,000 5.75%, 11/15/00 502,500
800,000 5.25%, 01/31/01 795,250
2,500,000 5.625%, 2/28/01 2,506,641
150,000 6.625%, 7/31/01 154,570
50,726 3.625%, 7/15/02(TIPS) 50,179
1,500,000 6.00%, 7/31/02 1,525,539
1,000,000 6.375%, 8/15/02 1,030,776
1,000,000 5.875%, 2/15/04 1,018,596
350,000 6.50%, 8/15/05 369,413
540,000 9.25%, 2/15/16 751,276
400,000 7.875%, 2/15/21 507,689
580,000 8.125%, 5/15/21 755,359
400,000 8.125%, 8/15/21 521,501
1,750,000 6.75%, 8/15/26 2,004,017
1,300,000 6.25%, 5/31/99 1,308,435
------------
Total U.S. Treasury Securities
(Cost $15,240,035) 15,692,349
------------
</TABLE>
See Notes to Financial Statements on Page 15
11
<PAGE>
U.S. Bond Index Portfolio
Statement of Net Assets June 30, 1998 (unaudited)
<TABLE>
<CAPTION>
Principal
Amount Security Value
--------- -------- -----
<S><C>
SHORT-TERM INSTRUMENTS - 11.27%
Mutual Fund - 9.36%
$4,258,513 BT Institutional Cash Management
Fund $ 4,258,513
U.S. Government & Agency - 1.90%
875,000 U.S. Treasury Bill
5.10%, 9/18/98 871,348
------------
Total Short-Term Instruments
(Cost $5,129,286) 5,129,861
------------
Total Investments (Cost $46,336,433) 104.16% $47,409,558
Liabilities in Excess of Other Assets (4.16)% (1,895,280)
------- -----------
Net Assets 100.00% $45,514,278
======= ===========
</TABLE>
Abbreviations
- -------------
FNMA--Federal National Mortgage Association
FHLMC--Federal Home Loan Mortgage Corporation
GNMA--Government National Mortgage Association
TIPS--Treasury Inflation Protected Security
See Notes to Financial Statements on Page 15
12
<PAGE>
U.S. Bond Index Portfolio
Statement of Operations For the six months ended June 30, 1998 (unaudited)
<TABLE>
<S><C>
Investment Income
Interest $1,192,458
----------
Expenses
Advisory Fees 28,678
Administration and Services Fees 19,118
Professional Fees 12,185
Shareholder Reports 8,000
Miscellaneous 1,533
----------
Total Expenses 69,514
Less: Expenses Absorbed by Bankers Trust (50,405)
----------
Net Expenses 19,109
----------
Net Investment Income 1,173,349
----------
Realized and Unrealized Gain on Investments
Net Realized Gain from Investment Transactions 14,345
Net Change in Unrealized Appreciation/Depreciation on Investments 355,707
----------
Net Realized and Unrealized Gain on Investments 370,052
----------
Net Increase in Net Assets from Operations $1,543,401
==========
</TABLE>
See Notes to Financial Statements on Page 15
13
<PAGE>
U.S. Bond Index Portfolio
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the period
For the June 10, 1997(2)
six months ended through
June 30, 1998(1) December 31, 1997
----------------- -----------------
<S><C>
Increase in Net Assets from:
Operations
Net Investment Income $ 1,173,349 $ 1,394,346
Net Realized Gain from Investment Transactions 14,345 604,278
Net Change in Unrealized Appreciation/Depreciation on Investments 355,707 717,418
----------- ------------
Net Increase in Net Assets from Operations 1,543,401 2,716,042
Capital Transactions
Proceeds from Capital Invested 13,694,718 49,551,623
Value of Capital Withdrawn (581,736) (21,409,870)
----------- ------------
Net Increase in Net Assets from Capital Transactions 13,112,982 28,141,753
----------- ------------
Total Increase in Net Assets 14,656,383 30,857,795
Net Assets
Beginning of Period 30,857,895 100
----------- ------------
End of Period $45,514,278 $ 30,857,895
=========== ============
</TABLE>
- ----------
(1) Unaudited
(2) Commencement of operations.
- -------------------------------------------------------------------------------
Financial Highlights
Contained below are selected supplemental data and ratios to average net assets
for the periods indicated for the U.S. Bond Index Portfolio.
<TABLE>
<CAPTION>
For the period
For the June 10, 1997(2)
six months ended through
June 30, 1998(1) December 31, 1997
----------------- -----------------
<S><C>
Supplemental Data and Ratios:
Net Assets, End of Period (000s omitted) $45,514 $30,858
Ratios to Average Net Assets:
Net Investment Income 6.12%(3) 6.31%(3)
Expenses 0.10%(3) 0.10%(3)
Decrease Reflected in Above Expense Ratio Due
to Absorption of Expenses by Bankers Trust 0.26%(3) 0.18%(3)
Portfolio Turnover Rate 11% 79%
</TABLE>
- ----------
(1) Unaudited
(2) Commencement of operations.
(3) Annualized.
See Notes to Financial Statements on Page 15
14
<PAGE>
U.S. Bond Index Portfolio
Notes to Financial Statements (unaudited)
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 commenced 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 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 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. Repurchase Agreements
The Portfolio may enter into repurchase agreements with financial institutions
deemed to be creditworthy by the Portfolio's Investment Advisor, subject to the
seller's agreement to repurchase such securities at a mutually agreed upon
price. Securities purchased subject to repurchase agreements are deposited with
the Portfolio's custodian, and pursuant to the terms of the repurchase agreement
must have an aggregate market value greater than or equal to the repurchase
price plus accrued interest at all times. If the value of the underlying
securities falls below the value of the repurchase price plus accrued interest,
the Portfolio will require the seller to deposit additional collateral by the
next business day. If the request for additional collateral is not met, or the
seller defaults on its repurchase obligation, the Portfolio maintains the right
to sell the underlying securities at market value and may claim any resulting
loss against the seller. However, in the event of a 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 the
Bankers Trust Company ("Bankers Trust"). Under this Administration and Services
Agreement, Bankers Trust provides administrative, custody 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 Advisory Agreement, the Portfolio pays Bankers Trust an advisory fee
computed daily and paid monthly at an annual rate of .15% of the Portfolio's
average daily net assets.
Bankers Trust has voluntarily undertaken to waive its fees and reimburse
expenses of the Portfolio, to the extent necessary, to limit all expenses to
.10% of the average daily net assets of the Portfolio. For the six-month period
ended June 30, 1998, expenses of the Portfolio have been reduced by $50,405. In
addition, the Portfolio is owed $18,367, net of Administration and Service fees
of $1,860 and Advisory Fees of $5,580 relating to waived fees and reimbursable
expenses at June 30, 1998.
Investment In Affiliated Fund
The Portfolio may invest in the BT Institutional Cash Management Fund ("the
Fund"), an open-end management investment company managed by Bankers Trust
Company ("the Company"). The Fund is offered as a cash management option to the
Portfolio and other accounts managed by the Company. Distributions from the Fund
to the Portfolio as of June 30, 1998 amounted to approximately $26,000 and are
included in income.
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 commitment fee of .07% per annum on the
average daily amount of the available commitment is payable on a quarterly basis
and apportioned equally among all participants. Amounts borrowed under the
credit facilities will bear interest at a rate per annum equal to the Federal
Funds Rate plus .45%. No amounts were drawn down or outstanding under the credit
facilities as of and for the period ended June 30, 1998.
Note 3--Purchases and Sales of Investment Securities
This aggregate cost of purchases and proceeds from sales of investments, other
than short-term obligations, for the six-month period ended June 30, 1998, were
$14,255,002 and $4,052,608, respectively. For federal income tax purposes, the
tax basis of investments held at June 30, 1998 was $46,336,433. The aggregate
gross unrealized appreciation was $1,081,551, and aggregate gross unrealized
depreciation for all investments was $8,426 as of June 30, 1998.
Note 4--Net Assets
At June 30, 1998, net assets consisted of:
Paid-in-Capital $43,253,459
Undistributed Net Investment Income 1,173,349
Accumulated Net Realized Gain from 14,345
Investment Transactions
Net Unrealized Appreciation on Investments 1,073,125
-----------
$45,514,278
===========
15
<PAGE>
BT ADVISOR FUNDS
U.S. BOND INDEX FUND
Investment Advisor and Administrator of the Portfolio
BANKERS TRUST COMPANY
130 Liberty Street
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
New York, NY 10006
Independent Accountants
PRICEWATERHOUSECOOPERS LLP
250 West Pratt Street
Baltimore, MD 21201
Counsel
WILLKIE FARR & GALLAGHER
787 7th Avenue
New York, NY 10019
--------------------
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 Fund.
--------------------
U.S. Bond Index Fund - Institutional Class Cusip #05576L700
U.S. Bond Index Fund - Advisor Class Cusip #05576L866
STA511100 (6/98)
