(bullet) BT ADVISOR FUNDS (bullet)
U.S. BOND INDEX FUND
A N N U A L R E P O R T
-------------------------------
D E C E M B E R (bullet) 1 9 9 7
<PAGE>
U.S. 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
Statement of Changes in Net Assets 6
Financial Highlights 7
Notes to Financial Statements 8
Report of Independent Accountants 10
U.S. Bond Index Portfolio
Schedule of Portfolio Investments 11
Statement of Assets and Liabilities 14
Statement of Operations 14
Statement of Changes in Net Assets 15
Financial Highlights 15
Notes to Financial Statements 16
Report of Independent Accountants 17
2
<PAGE>
U.S. Bond Index Fund
Letter to Shareholders
We are pleased to present you with this first annual report for the U.S. Bond
Index 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. The U.S. Bond Index Fund (the "Fund")
became operational on June 30, 1997, and thus while this is an annual report,
performance is being reported for the period ended December 31, 1997.
The Fund's Institutional Class Shares returned 6.52% and the Fund's Advisor
Class Shares returned 6.15%, cumulatively, for the period ended December 31,
1997.# This performance compares to a 6.36% return for the Lehman Brothers
Aggregate Bond Index* and a 6.14% return for the Lipper U.S. Bond Index Funds
Average.** 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.
- --------------------------------------------------------------------------------
Objective
Seeks to replicate as closely as possible (before deduction of expenses) the
total return of the Lehman Brothers Aggregate Bond Index.
- --------------------------------------------------------------------------------
MARKET ACTIVITY
Looking at the year as a whole, U.S. bonds performed well, although like the
highly publicized stock market, the bond markets experienced volatility, too.
U.S. Treasury yields rose in the first half of the year, with the 10-year note
closing the semi-annual period at 6.50%, 0.08% higher than its December 31, 1996
level. The 2-year and 5-year Treasuries rose by 0.19% and 0.17%, respectively,
and the 30-year rose by 0.14%. All of the positive returns for this time period
came from the coupon part of the bonds. In fact, the price return of the Index
for the first half was a negative 0.40%, while the coupon return of the Index
produced a positive 3.44%.
In late February and March, statistics indicating accelerating growth led
investors to begin anticipating an interest rate increase by the Federal Reserve
Board and a sell-off resulted. Indeed, a rapidly growing economy supported by
strong consumer spending and home building did prompt the Federal Reserve Board
to increase the Fed Funds rate from 5.25% to 5.50% on March 25, 1997--the first
increase in over two years. As the above-trend economic growth of the first
quarter did not result in a rise in the reported inflation rate, the bond market
rallied in the second quarter and into the third. Investors' growing comfort
with the high growth/low inflation scenario was reinforced by a variety of
economic data as well as Federal Reserve Board Chairman Alan Greenspan's
Humphrey Hawkins testimony in July. A stronger-than-expected employment release
in early August interrupted the rally mid-quarter with a sharp market sell-off
again, but the rally resumed its pace in September, as a lack of inflation again
became apparent.
- --------------------------------------------------------------------------------
Investment Instruments
Primarily fixed income securities of the U.S. government or agency.
- --------------------------------------------------------------------------------
The financial crisis in Asia caused major turmoil in the world's financial
markets in the fourth quarter. Some investors sought the relative safety of U.S.
Treasuries, and this market was thus lifted to its highs of the year. The
30-year Treasury went below the 6.00% level and ended the year at 5.92%, 0.72%
less than its level one year earlier. The 2-year and 5-year Treasuries were
0.23% and 0.50% lower for the year, respectively, and the 10-year was 0.68%
lower. Thus, yield spreads narrowed, and the yield curve flattened. The Federal
Reserve Board remained on hold, with no change in monetary policy, for the
remainder of the year.
Overall, on a duration-adjusted basis, mortgage-backed securities outperformed
Treasuries for the year, while corporate bonds underperformed. The mortgage
sector performed well primarily because, although interest rates fell,
prepayments remained low. The corporate sector outperformed Treasuries for the
first three quarters of 1997. However, this was overwhelmed by uncertainty in
the fourth quarter concerning the effects the Asian financial turmoil may have
on the U.S. economy.
MANAGER OUTLOOK
Current data supports the notion that the Federal Reserve Board continues to be
on hold, and that, overall, real economic growth is anticipated to cool from its
earlier rapid pace, coming in at about 2% for all of 1998. With that, plus
ongoing favorable long-term fundamentals, the environment is expected to be
positive for the bond market. At the same time, although slower economic
expansion and contained inflation would normally help bond yields move lower,
the sharp rally that has already taken place may limit gains in the bond market
for the near term as compared to those in the year just past.
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, it is important to note that we neither evaluate
short-term fluctuations in the Fund's performance nor manage 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.
____________
#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.
* This index is unmanaged, and investments cannot be made in an index.
** Lipper figures represent the average of the total returns reported by all of
the funds designated by Lipper Analytical Services, 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
Diversification of Portfolio Investments
By Sector as of December 31, 1997
(percentages are based on market value)
[Plot points for pie chart appear below]
Financial 15%
Industrial 15%
Utility 5%
Foreign
Government 3%
U.S. Treasury Securities 20%
Medium-Term Notes 3%
U.S. Government & Agency 39%
We value your support of the U.S. Bond Index Fund and look forward to serving
your investment needs in the years ahead.
/s/ Louis R. D'Arienzo
--------------------------
Louis R. D'Arienzo
Portfolio Manager of the
U.S. Bond Index Portfolio
December 31, 1997
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 December 31, 1997
Institutional Advisor
Since 6/30/97* Since 6/30/97*
6.52% 6.15%
* 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.
______U.S. Bond Index Fund - Institutional Class - $10,652
- ------Lehman Brothers Aggregate Bond Index - $10,636
[Plot points for graph appear below]
Inst. Class Lehman Agg. Bond
----------- ----------------
6/97 $10,000 $10,000
9/97 10,338 10,332
12/97 10,652 10,636
______U.S. Bond Index Fund - Advisor Class - $10,615
- ------Lehman Brothers Aggregate Bond Index - $10,636
Adv. Class Lehman Agg. Bond
---------- ----------------
6/97 $10,000 $10,000
9/97 10,316 10,332
12/97 10,615 10,636
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 December 31, 1997
<TABLE>
<S><C>
Assets
Investment in U.S. Bond Index Portfolio, at Value $ 8,332,214
Due from Bankers Trust 37,245
Prepaid Expenses 8,049
--------------
Total Assets 8,377,508
Liabilities
Accrued Expenses 16,485
--------------
Total Liabilities 16,485
--------------
Net Assets $ 8,361,023
Composition of Net Assets ==============
Paid-in Capital $ 7,783,879
Undistributed Net Investment Income 14,862
Accumulated Net Realized Gain from Investment Transactions 136,018
Net Unrealized Appreciation on Investments 426,264
--------------
Net Assets $ 8,361,023
==============
Net Asset Value, Offering and Redemption Price Per Share (net assets divided by shares outstanding)
Institutional Class Shares(dagger) $ 10.29
==============
Advisor Class Shares(double dagger) $ 10.26
==============
</TABLE>
____________
(dagger) Net asset value, offering and redemption price per share (based
on net assets of $8,119,408 and 789,133 shares of beneficial
interest outstanding and .001 par value, unlimited number of
shares of beneficial interest authorized).
(double dagger) Net asset value, offering and redemption price per share (based
on net assets of $241,615 and 23,556 shares of beneficial
interest outstanding and .001 par value, unlimited number of
shares of beneficial interest authorized).
Statement of Operations For the period June 30, 1997* through Dec. 31, 1997
<TABLE>
<S><C>
Investment Income
Income Allocated from U.S. Bond Index Portfolio, net $ 624,612
Expenses ---------------
Administration and Services Fees
Institutional Class 19,528
Advisor Class 85
Shareholder Reports 10,292
Institutional Class 8,223
Advisor Class 5,892
Registration Fees 5,971
Professional Fees 7,734
Trustees Fees 4,569
Miscellaneous 1,054
---------------
Total Expenses 63,348
Less: Expenses Absorbed by Bankers Trust
Institutional Class (52,269)
Advisor Class (6,091)
---------------
Net Expenses 4,988
---------------
Net Investment Income 619,624
---------------
Realized and Unrealized Gain on Investments
Net Realized Gain from Investment Transactions 224,635
Net Change in Unrealized Appreciation on Investments 426,264
---------------
Net Realized and Unrealized Gain on Investments 650,899
---------------
Net Increase in Net Assets from Operations $ 1,270,523
===============
</TABLE>
____________
* Commencement of Operations.
See Notes to Financial Statements on Pages 8 and 9
5
<PAGE>
U.S. Bond Index Fund
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the period
June 30, 1997*
through
December 31, 1997
-----------------
<S><C>
Increase (Decrease) in Net Assets from:
Operations
Net Investment Income $ 619,624
Net Realized Gain from Investment Transactions 224,635
Net Change in Unrealized Appreciation on Investments 426,264
-------------
Net Increase in Net Assets from Operations 1,270,523
-------------
Distributions to Shareholders
Net Investment Income
Institutional Class (602,199)
Advisor Class (2,563)
Net Realized Gain from Investment Transactions
Institutional Class (87,690)
Advisor Class (927)
-------------
Total Distributions (693,379)
-------------
Capital Transactions in Shares of Beneficial Interest
Net Increase Resulting from Institutional Class Shares 7,543,166
Net Increase Resulting from Advisor Class Shares 240,613
-------------
Net Increase from Capital Transactions in Shares of Beneficial Interest 7,783,779
-------------
Total Increase in Net Assets 8,360,923
Net Assets
Beginning of Period 100
-------------
End of Period (includes undistributed net investment income of $14,862) $ 8,361,023
=============
</TABLE>
____________
* 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, ratios to average net assets and other supplemental data for the period
indicated for the U.S. Bond Index Fund.
<TABLE>
<CAPTION>
Institutional Class Shares Advisor Class Shares
-------------------------- --------------------
For the period For the period
June 30, 1997* through June 30, 1997* through
December 31, 1997 December 31, 1997
------------------ ------------------
<S><C>
Per Share Operating Performance:
Net Asset Value, Beginning of Period $ 10.00 $ 10.00
Income from Investment Operations --------- ---------
Net Investment Income 0.33 0.32
Net Realized and Unrealized Gain on Investment Transactions 0.32 0.29
--------- ---------
Total from Investment Operations 0.65 0.61
Distributions to Shareholders
Net Investment Income (0.32) (0.31)
Net Realized Gain from Investment Transactions (0.04) (0.04)
--------- ---------
Total Distributions (0.36) (0.35)
--------- ---------
Net Asset Value, End of Period $ 10.29 $ 10.26
========= =========
Total Investment Return 6.52% 6.15%
Supplemental Data and Ratios:
Net Assets, End of Period (000s omitted) $ 8,119 $ 242
Ratios to Average Net Assets:
Net Investment Income 6.32%** 6.31%**
Expenses, including expenses of the
U.S. Bond Index Portfolio 0.15%** 0.35%**
Decrease Reflected in Above Expense Ratio Due
to Absorption of Expenses by Bankers Trust 0.71%** 14.53%**
</TABLE>
____________
* Commencement of operations.
** Annualized.
See Notes to Financial Statements on Pages 8 and 9
7
<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 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 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 U.S. Bond Index Portfolio (the "Portfolio"). The value
of such investment in the Portfolio reflects the Fund's proportionate interest
in the net assets of the Portfolio. At December 31, 1997, the Fund's
proportionate interest in net assets of the Portfolio was 27.00%.
The financial statements of the Portfolio, including the Schedule of Portfolio
Investments, 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 which 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 0.20 of 1% of the average daily net assets of each
Class. For the period ended December 31, 1997, this fee aggregated to $19,528
and $85 for the U.S. Bond Index Institutional Class and Advisor Class,
respectively.
Bankers Trust has voluntarily undertaken to waive 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 0.05 of 1% of the average daily net
assets of the Class, excluding expenses of the Portfolio and 0.15 of 1% 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 0.25 of 1% of the average daily
net assets of the Class, excluding expenses of the Portfolio and 0.35 of 1% of
the average daily net assets of the Class, including expenses of the Portfolio.
For the period ended December 31, 1997, expenses have been reduced by $52,269
and $6,091 for the U.S. Bond Index Institutional Class and Advisor Class,
respectively.
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 of the Fund.
8
<PAGE>
U.S. Bond Index Fund
Notes to Financial Statements (continued)
Note 3--Shares of Beneficial Interest
At December 31, 1997, there were an unlimited number of shares of beneficial
interest authorized. Transactions in shares of beneficial interest were as
follows:
Institutional Class Shares* Advisor Class Shares*
--------------------------- -----------------------
For the period For the period
ended December 31, 1997 ended December 31, 1997
--------------------------- -----------------------
Shares Amount Shares Amount
--------- ------------ ------- ------------
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
========== ============ ======= ============
____________
* Commencement of operations for the U.S. Bond Index Institutional Class and
Advisor Class was June 30, 1997.
9
<PAGE>
U.S. Bond Index Fund
Report of Independent Accountants
To the Trustees of BT Advisor Funds and the shareholders of the U.S. Bond Index
Fund:
We have audited the accompanying statement of assets and liabilities of the U.S.
Bond Index Fund (one of the Funds comprising BT Advisor Funds) as of December
31, 1997, and the related statement of operations, the statement of changes in
net assets and the financial highlights for the period June 30, 1997
(commencement of operations) to December 31, 1997. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of December 31, 1997, by
correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
U.S. Bond Index Fund as of December 31, 1997, the results of its operations, the
changes in its net assets and the financial highlights for the period June 30,
1997 (commencement of operations) to December 31, 1997, in conformity with
generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Kansas City, Missouri
February 27, 1998
10
<PAGE>
U.S. Bond Index Portfolio
Schedule of Portfolio Investments December 31, 1997
Principal
Amount Security Value
------ -------- -----
CORPORATE
DEBT NON-CONVERTIBLE - 34.15%
Financial - 14.35%
$ 225,000 American General Finance,
7.25%, 5/15/05 $ 234,396
200,000 BankAmerica Corp.,
7.125%, 5/01/06 208,320
260,000 BankBoston Corp.,
6.38%, 8/11/00 261,581
100,000 Chase Manhattan Corp.,
10.00%, 6/15/99 105,270
300,000 Chase Manhattan Corp.,
7.125%, 6/15/09 311,552
325,000 Chrysler Financial Corp.,
6.11%, 7/28/99 325,448
100,000 First Union Corp.,
7.50%, 7/15/06 106,878
200,000 Ford Motor Credit,
7.20%, 6/15/07 211,218
100,000 GMAC,
9.625%, 5/15/00 107,456
200,000 Grand Metro,
6.50%, 9/15/99 201,300
300,000 IBM Credit Corp.,
5.875%, 8/25/99 299,793
300,000 Interamerican Development Bank,
6.625%, 3/07/07 311,574
300,000 Lehman Brothers Holdings-Series E,
6.30%, 8/11/99 300,906
300,000 Merrill Lynch & Co., Inc.,
6.64%, 9/19/02 304,468
100,000 NationsBank Corp.,
6.50%, 3/15/06 100,501
200,000 Norwest Corp.,
6.75%, 6/15/07 204,610
300,000 PNC Funding Corp.,
6.875%, 7/15/07 306,213
300,000 Salomon Smith Barney Holdings,
5.625%, 11/15/98 298,671
100,000 Texaco Capital, Inc.,
8.50%, 2/15/03 109,869
110,000 U.S. Bancorp,
8.125%, 5/15/02 117,407
------------
4,427,431
------------
Industrial - 14.83%
100,000 Conagra, Inc.,
7.125%, 10/01/26 106,547
200,000 Dayton Hudson Corp.,
9.75%, 7/01/02 226,464
300,000 Dillard's, Inc.,
8.00%, 1/15/99 306,204
400,000 DuPont,
8.125%, 3/15/04 439,979
$ 300,000 Federated Department Stores,
7.45%, 7/15/17 $ 314,538
200,000 General Motors,
8.80%, 3/01/21 244,904
300,000 Hanson Overseas,
6.75%, 9/15/05 305,561
200,000 Hertz Corp.,
7.00%, 7/15/03 203,677
150,000 J Seagram & Sons,
9.65%, 8/15/18 195,369
200,000 Lockheed Martin Corp.,
7.25%, 5/15/06 209,947
300,000 Marriott International, Series A,
6.75%, 12/15/03 307,830
300,000 McDonald's Corp.,
8.875%, 4/01/11 363,500
200,000 News America Holdings,
7.50%, 3/01/00 204,593
300,000 Potash Corp.,
7.125%, 6/15/07 307,353
300,000 Sears, Roebuck & Co.,
8.30%, 10/26/04 331,050
300,000 Wal-Mart Stores, Inc.,
6.50%, 6/01/03 304,558
100,000 Walt Disney Co.,
6.375%, 3/30/01 101,110
100,000 Walt Disney Co.,
6.75%, 3/30/06 103,372
------------
4,576,556
------------
Utility - 4.97%
300,000 Baltimore Gas & Electric Co.,
8.375%, 8/15/01 320,754
100,000 Consolidated Edison,
6.45%, 12/01/07 100,438
200,000 Consolidated Natural Gas,
6.625%, 12/01/06 204,761
200,000 GTE South, Inc.,
7.25%, 8/01/02 207,059
100,000 Potomac Electric Power,
6.25%, 10/15/07 100,578
200,000 Southern California Edison,
6.375%, 1/15/06 200,075
200,000 Southwestern Bell,
7.625%, 3/01/23 208,763
200,000 U.S. West Communications,
6.875%, 9/15/33 192,135
------------
1,534,563
------------
Total Corporate Debt Non-convertible
(Cost $10,333,300) 10,538,550
------------
See Notes to Financial Statements on Page 16
11
<PAGE>
U.S. Bond Index Portfolio
Schedule of Portfolio Investments December 31, 1997
Principal
Amount Security Value
------ -------- -----
FOREIGN DEBT - 2.91%
Foreign Government - 2.75%
$ 100,000 Hydro-Quebec,
8.40%, 1/15/22 $ 118,125
220,000 Kingdom of Sweden
12.00%, 2/01/10 325,628
200,000 Quebec Province,
7.00%, 1/30/07 207,609
200,000 Republic of Finland,
5.875%, 2/27/06 198,156
------------
849,518
------------
Industrial - 0.16%
50,000 Celulosa Arauco Constitcion,
7.00%, 12/15/07 49,435
------------
49,435
------------
Total Foreign Debt
(Cost $860,760) 898,953
------------
MEDIUM-TERM NOTES - 2.72%
Medium-Term Notes - 2.72%
300,000 FNMA,
6.94%, 3/19/07 306,655
500,000 FNMA,
6.96%, 4/02/07 531,016
------------
837,671
------------
Total Medium-Term Notes
(Cost $829,956) 837,671
------------
U.S. GOVERNMENT & AGENCIES - 38.02%
U.S. Government & Agencies - 38.02%
1,415,040 FGLMC,
7.00%, 12/01/24 1,434,808
522,608 FGLMC,
7.00%, 12/01/26 528,435
213,374 FGLMC,
7.00%, 6/01/27 215,288
491,773 FGLMC,
7.50%, 5/01/24 504,987
512,328 FGLMC,
7.50%, 5/01/27 525,249
186,470 FGLMC,
7.50%, 6/01/27 190,998
270,606 FGLMC,
7.50%, 7/01/27 277,177
1,867,057 FNMA,
6.00%, 10/01/09 1,848,590
521,966 FNMA,
7.00%, 6/01/12 529,821
245,771 FNMA,
7.00%, 7/01/12 249,470
939,229 FNMA,
8.00%, 7/01/27 972,600
Principal
Amount Security Value
- --------- -------- -----
$ 901,658 FNMA,
8.50%, 12/01/25 $ 950,140
1,535,649 GNMA,
6.50%, 11/15/23 1,524,500
499,239 GNMA,
9.00%, 1/15/23 537,666
1,383,836 GNMA,
8.00%, 7/15/22 1,442,802
------------
11,732,531
------------
Total U.S. Government & Agencies
(Cost $11,493,586) 11,732,531
------------
U.S. TREASURY SECURITIES - 18.76%
U.S. Treasury Securities - 18.76%
580,000 U.S. Treasury Bond,
8.125%, 5/15/21 730,982
650,000 U.S. Treasury Bond,
8.125%, 8/15/19 813,414
540,000 U.S. Treasury Bond,
9.25%, 2/15/16 732,794
287,000 U.S. Treasury Bond,
6.625%, 2/15/27 311,618
100,000 U.S. Treasury Bond,
7.125%, 2/15/23 114,172
400,000 U.S. Treasury Bond,
7.875%, 2/15/21 491,187
1,300,000 U.S. Treasury Note,
6.25%, 5/31/99 1,310,564
600,000 U.S. Treasury Note,
6.375%, 5/15/00 609,094
50,447 U.S. Treasury Note (TIPS),
3.625%, 7/15/02 50,211
450,000 U.S. Treasury Note,
6.50%, 8/15/05 469,618
150,000 U.S. Treasury Note,
6.625%, 7/31/01 154,241
------------
5,787,895
------------
Total U.S. Treasury Securities
(Cost $5,560,580) 5,787,895
------------
See Notes to Financial Statements on Page 16
12
<PAGE>
U.S. Bond Index Portfolio
Schedule of Portfolio Investments December 31, 1997
Principal
Amount Security Value
------ -------- -----
SHORT-TERM INSTRUMENT - 2.11%
Repurchase Agreement - 2.11%
$ 651,751 Sanwa Bank, dated 12/31/97, 6.50%,
principal and interest in the amount of
$651,986, due 1/02/98 (Collateralized
by U.S. Treasury Bonds, 11.25% par value
of $416,000, due 2/15/15, value of
$669,700 $ 651,751
------------
Total Short-Term Instrument
(Cost $651,751) 651,751
------------
Total Investments (Cost $29,729,933) 98.67% 30,447,351
Other Assets in Excess of Liabilities 1.33% 410,544
------ ------------
Net Assets 100.00% $ 30,857,895
====== ============
Abbreviations
- -------------
FNMA--Federal National Mortgage Assoc.
FGLMC--Federal Home Loan Mortgage Corp. Gold
GNMA--Government National Mortgage Assoc.
TIPS--Treasury Inflation Protected Security
See Notes to Financial Statements on Page 16
13
<PAGE>
U.S. Bond Index Portfolio
Statement of Assets and Liabilities December 31, 1997
<TABLE>
<S><C>
Assets
Investments, at Value (Cost of $29,729,933) $ 30,447,351
Cash 15,834
Interest Receivable 404,907
Due from Bankers Trust 14,921
---------------
Total Assets 30,883,013
---------------
Liabilities
Accrued Expenses and Other 25,118
---------------
Total Liabilities 25,118
---------------
Net Assets $ 30,857,895
===============
Composition of Net Assets
Paid-in Capital $ 30,140,477
Net Unrealized Appreciation on Investments 717,418
---------------
Net Assets $ 30,857,895
===============
</TABLE>
Statement of Operations For the period June 10, 1997* through Dec. 31, 1997
<TABLE>
<S><C>
Investment Income
Interest $ 1,416,434
---------------
Expenses
Advisory Fees 33,131
Administration and Services Fees 11,044
Trustees Fees 1,167
Professional Fees and Other 16,273
---------------
Total Expenses 61,615
Less: Expenses Absorbed by Bankers Trust (39,527)
---------------
Net Expenses 22,088
---------------
Net Investment Income 1,394,346
---------------
Realized and Unrealized Gain on Investments
Net Realized Gain from Investment Transactions 604,278
Net Change in Unrealized Appreciation on Investments 717,418
---------------
Net Realized and Unrealized Gain on Investments 1,321,696
---------------
Net Increase in Net Assets from Operations $ 2,716,042
===============
</TABLE>
____________
* Commencement of operations.
See Notes to Financial Statements on Page 16
14
<PAGE>
U.S. Bond Index Portfolio
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the period
June 10, 1997* through
December 31, 1997
-----------------
<S><C>
Increase in Net Assets from:
Operations
Net Investment Income $ 1,394,346
Net Realized Gain from Investment Transactions 604,278
Net Change in Unrealized Appreciation on Investments 717,418
---------------
Net Increase in Net Assets from Operations 2,716,042
Capital Transactions
Proceeds from Capital Invested 49,551,623
Value of Capital Withdrawn (21,409,870)
---------------
Net Increase in Net Assets from Capital Transactions 28,141,753
---------------
Total Increase in Net Assets 30,857,795
Net Assets
Beginning of Period 100
---------------
End of Period $ 30,857,895
===============
</TABLE>
____________
* Commencement of operations.
Financial Highlights
Contained below are selected supplemental data and ratios to average net assets
for the period indicated for the U.S. Bond Index Portfolio.
<TABLE>
<CAPTION>
For the period
June 10, 1997* through
December 31, 1997
-----------------
<S><C>
Supplemental Data and Ratios:
Net Assets, End of Period (000s omitted) $ 30,858
Ratios to Average Net Assets:
Net Investment Income 6.31%**
Expenses 0.10%**
Decrease Reflected in Above Expense Ratio Due
to Absorption of Expenses by Bankers Trust 0.18%**
Portfolio Turnover Rate 79%
</TABLE>
____________
* Commencement of operations.
** Annualized.
See Notes to Financial Statements on Page 16
15
<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 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 value. Securities for which
quotations are not 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 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 and shareholder
services to the Portfolio in return for a fee computed daily and paid monthly at
an annual rate of 0.05 of 1% of the Portfolio's average daily net assets. For
the period ended December 31,1997, this fee aggregated $11,044.
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 0.15 of 1% of the
Portfolio's average daily net assets. For the period ended December 31, 1997,
this fee aggregated $33,131.
Bankers Trust has voluntarily undertaken to waive and reimburse expenses of the
Portfolio, to the extent necessary, to limit all expenses to 0.10 of 1% of the
average daily net assets of the Portfolio. For the period ended December 31,
1997, expenses of the Portfolio have been reduced by $39,527.
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 period ended December 31, 1997, were
$58,601,771 and $29,396,566, respectively. For federal income tax purposes, the
tax basis of investments held at December 31, 1997 was $29,729,933. The
aggregate gross unrealized appreciation was $717,807, and the aggregate gross
unrealized depreciation for all investments was $389 as of December 31, 1997.
16
<PAGE>
U.S. Bond Index Portfolio
Report of Independent Accountants
To the Trustees and Holders of Beneficial Interest of BT Investment Portfolios:
We have audited the accompanying statement of assets and liabilities, including
the schedule of portfolio investments, of the U.S. Bond Index Portfolio (one of
the Portfolios comprising BT Investment Portfolios) as of December 31, 1997, and
the related statement of operations, the statement of changes in net assets and
the financial highlights for the period June 10, 1997 (commencement of
operations) to December 31, 1997. These financial statements and financial
highlights are the responsibility of the Portfolio's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of December 31, 1997, by
correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
U.S. Bond Index Portfolio as of December 31, 1997, the results of its
operations, the changes in its net assets and the financial highlights for the
period June 10, 1997 (commencement of operations) to December 31, 1997, in
conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Kansas City, Missouri
February 27, 1998
17
<PAGE>
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<PAGE>
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<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
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 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
STA507200 (2/98)
