o BT ADVISOR FUNDS o
U.S. BOND INDEX FUND
ANNUAL REPORT
DECEMBER 1998
<PAGE>
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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
Statements of Changes in Net Assets .................................... 6
Financial Highlights ................................................... 7
Notes to Financial Statements .......................................... 8
Report of Independent Accountants ...................................... 10
Tax Information ........................................................ 10
U.S. Bond Index Portfolio
Schedule of Portfolio Investments ....................................... 11
Statement of Assets and Liabilities ..................................... 14
Statement of Operations ................................................. 14
Statements of Changes in Net Assets ..................................... 15
Financial Highlights .................................................... 15
Notes to Financial Statements ........................................... 16
Report of Independent Accountants ....................................... 17
2
<PAGE>
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U.S. Bond Index Fund
Letter to Shareholders
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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
Overall, the strong performance of the U.S. bond markets in the first half of
the year continued through the second half, with the yield on the 10-year
Treasury falling from 5.74% on December 31, 1997 to 4.65% on December 31, 1998.
Similarly, the yield on the 2-year Treasury fell 1.11% to 4.53% during the
period, while the 30-year Treasury shed 0.83% to a yield of 5.09%. This decrease
in yields, which, in turn, caused appreciation in price, along with the coupon
produced a positive return for the year. The 2 to 30 year yield curve steepened
by 0.28% over the twelve months.
Optimism reigned throughout the first half of the year 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 had been for more than a
year. Policymakers' reluctance to make changes stemmed from uncertainty over
whether an abundance of positive economic factors would ultimately trigger
inflation or whether domestic growth would slow as a result of the long-term
impact of Asia's financial problems.
The second half of the year saw tremendous turmoil in the world's financial
markets, supporting U.S. Treasuries ongoing rally to unprecedented levels.
Russia devalued its currency and defaulted on its domestic debt; weak commodity
prices dampened the economic outlook for Latin America; and the well-publicized
economic instability in Asia continued. Also weighing on investor sentiment was
the bailout by a consortium of Wall Street firms of the hedge fund, Long Term
Capital. With global markets, including the U.S. equity markets, rife with
volatility, investors fled riskier assets for the relative safety of U.S.
Treasuries, and, in the process, drove the entire yield curve to near 5% or
below.
INVESTMENT REVIEW
The Fund's benchmark, the Lehman Brothers Aggregate Bond Index2, 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.
Citing the prospective effects that the global crisis could have on the U.S.
economy, the Federal Reserve Board lowered interest rates three times in the
second half of the year. These moves of 0.25% each--on September 29, October 15,
and November 17--restored the financial markets to a more peaceful state and
allowed the bond markets, in particular, to finish out the year on a relatively
calm note. Also fueling positive bond market sentiment toward the end of the
year was a plunge in oil prices and other commodities to their lowest level in
decades.
Overall, on a duration-adjusted basis, both corporate bonds and mortgage-backed
securities significantly underperformed Treasuries for the year, as the global
crisis wreaked havoc on the former two sectors of the bond market.
o Corporate bonds were under pressure most of the year due to the worsening
global situation and the potential impact it may have on the rate of growth
in both the U.S. economy and corporate profits. This concern about slower
growth more than wiped out the additional yield that corporate bonds
traditionally offer.
o Mortgage-backed securities also came under pressure, as prepayments
increased and 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
them to underperform.
MANAGER OUTLOOK
Economic and financial market performance have run on virtually parallel tracks
in 1998, and that pattern seems likely to persist into 1999. Thus, looking ahead
for the near term, we believe the bond markets should remain fairly positive,
though largely range-bound, without the dramatic rally of the year 1998.
o Strong momentum in the U.S. economy--in terms of consumer spending,
employment, housing, and business investment--should carry into early 1999,
before weakening later in the year.
o The global economic crisis continues to loom and we anticipate GDP growth
of around 2.5% in 1999--a positive backdrop for inflation to stay low and for
the safe haven status of U.S. Treasuries to continue.
<TABLE>
<CAPTION>
Periods ended December 31, 1998 Cumulative Total Returns Average Annual Total Returns
- ---------------------------------------------------------------------------------------------------------------------------
Past 1 Since Past 1 Since
year inception year inception
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BT Advisor U.S. Bond Index Fund1
Institutional Class Shares (inception 6/30/97) 8.78% 15.88% 8.78% 10.30%
- ---------------------------------------------------------------------------------------------------------------------------
Lehman Brothers Aggregate
Bond Index2 8.69% 15.60% 8.69% 10.15%
- ---------------------------------------------------------------------------------------------------------------------------
Lipper U.S. Bond Index
Funds Average3 8.71% 15.62% 8.71% 10.16%
</TABLE>
3
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U.S. Bond Index Fund
Letter to Shareholders
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Diversification of Portfolio Investments
By Sectors as of December 31, 1998
(percentages are based on net assets)
[PIECHART]
Financial 8%
Industrial 10%
Utility 5%
Foreign Government 2%
Cash & Other Assets 4%
U.S. Treasury Securities 35%
Medium-Term Notes 3%
U.S. Government & Agency 33%
o We believe Federal Reserve Board monetary policy is likely on hold, not
changing interest rates for the foreseeable future in the face of solid
economic growth, healthy financial markets, and the recent softening of the
dollar.
As an index fund, designed to replicate as closely as possible (before deduction
of expenses) the investment performance of the Lehman Brothers Aggregate Bond
Index2, 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.
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, 1998
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Performance Comparison
- --------------------------------------------------------------------------------
Comparison of Change in Value of a $10,000 Investment in the U.S. Bond Index
Fund - Institutional Class, and the Lehman Brothers Aggregate Bond Index2 since
June 30, 1997.
Total Return
Ended December 31, 1998
LINE CHART
<TABLE>
<CAPTION>
US Bond Index Fund - Institutional Class - $11,588 Lehman Aggregate Bond Index - $11,560
<S> <C> <C> <C>
6/97 10000 10000
12/97 10652 10636
6/98 11072 11054
12/98 11588 11560
</TABLE>
Institutional
One Year Since 6/30/97*
8.78% 10.30%**
* The Fund's inception date.
**Annualized
Investment return and principal value may fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
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.
The index return does not reflect expenses, which have been deducted from the
Funds return.
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 Analytical Services, Inc. as falling
into the respective 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.
4
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U.S. Bond Index Fund
Statement of Assets and Liabilities December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Investment in U.S. Bond Index Portfolio, at Value ....................................................... $39,649,069
Receivable for Fund Shares Sold ......................................................................... 48,011
Prepaid Expenses ........................................................................................ 13,446
Due from Bankers Trust ...................................................................................... 110,594
-------------
Total Assets ................................................................................................ 39,821,120
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LIABILITIES
Dividends Payable ........................................................................................... 18,475
Accrued Expenses ............................................................................................ 12,520
-------------
Total Liabilities ........................................................................................... 30,995
-------------
NET ASSETS .................................................................................................. $39,790,125
=============
COMPOSITION OF NET ASSETS
Paid-in Capital ......................................................................................... $38,987,371
Undistributed Net Investment Income ..................................................................... 15,998
Accumulated Net Realized Gain from Investment Transactions .............................................. 12,149
Net Unrealized Appreciation on Investment ............................................................... 774,607
-------------
NET ASSETS .................................................................................................. $39,790,125
=============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE (net assets divided by shares outstanding) ......... $ 10.47
=============
SHARES OUTSTANDING ($0.001 par value per share, unlimited number of shares of beneficial interest authorized) 3,799,176
=============
</TABLE>
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Statement of Operations For the year ended December 31, 1998
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<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME
Income Allocated from U.S.Bond Index Portfolio, net ..................................................... $ 1,267,359
--------------
EXPENSES
Administration and Services Fees
Institutional Class ................................................................................... 37,679
Advisor Class ......................................................................................... 5,926
Registration Fees ....................................................................................... 25,339
Trustees Fees ........................................................................................... 24,902
Professional Fees ....................................................................................... 20,579
Shareholder Reports ..................................................................................... 5,912
Miscellaneous ........................................................................................... 6,353
--------------
Total Expenses .......................................................................................... 126,690
Less: Expenses Absorbed by Bankers Trust
Institutional Class Shares .............................................................................. (106,630)
Advisor Class Shares .................................................................................... (3,004)
--------------
Net Expenses ............................................................................................ 17,056
--------------
NET INVESTMENT INCOME........................................................................................ 1,250,303
REALIZED AND UNREALIZED GAIN ON INVESTMENT
Net Realized Gain from Investment Transactions .......................................................... 114,224
Net Change in Unrealized Appreciation/Depreciation of Investment......................................... 348,343
--------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENT .............................................................. 462,567
--------------
NET INCREASE IN NET ASSETS FROM OPERATIONS .................................................................. $ 1,712,870
==============
</TABLE>
See Notes to Financial Statements.
5
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U.S. Bond Index Fund
Statements of Changes in Net Assets
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<TABLE>
<CAPTION>
For the period
For the June 30, 19971
year ended through
December 31, 1998 December 31, 1997
--------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS
Net Investment Income .............................................. $ 1,250,303 $ 619,624
Net Realized Gain from Investment Transactions ..................... 114,224 224,635
Net Change in Unrealized Appreciation/Depreciation on Investment ... 348,343 426,264
------------ ------------
Net Increase in Net Assets from Operations ............................ 1,712,870 1,270,523
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income
Institutional Class ........................................... (1,079,624) (602,199)
Advisor Class ................................................. (169,643) (2,563)
Net Realized Gain from Investment Transactions
Institutional Class ........................................... (275,177) (87,690)
Advisor Class ................................................. -- (927)
------------ ------------
Total Distributions ................................................... (1,524,444) (693,379)
------------ ------------
CAPITAL TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Net Increase Resulting from Institutional Class Shares ............. 31,539,521 7,543,166
Net Increase (Decrease) Resulting from Advisor Class Shares ........ (298,845) 240,613
------------ ------------
Net Increase from Capital Transactions in Shares of Beneficial Interest 31,240,676 7,783,779
------------ ------------
TOTAL INCREASE IN NET ASSETS .......................................... 31,429,102 8,360,923
NET ASSETS
Beginning of Period ................................................... 8,361,023 100
------------ ------------
End of Period (includes undistributed net investment income of $15,998
and $14,862, respectively) ....................................... $ 39,790,125 $ 8,361,023
============ ============
</TABLE>
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1 Commencement of Operations.
See Notes to Financial Statements.
6
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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 period For the period
For the June 30, 19972 For the June 30, 19972
year ended through period ended through
Dec. 31, 19983 Dec. 31, 1997 July 10, 19983 Dec. 31,1997
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
NET ASSET VALUE, BEGINNING OF PERIOD .............. $ 10.29 $ 10.00 $10.26 $ 10.00
---------- --------- ------ -------
INCOME FROMINVESTMENT OPERATIONS
Net Investment Income .......................... 0.59 0.33 0.32 0.32
Net Realized and Unrealized Gain
on Investment Transactions ................... 0.29 0.32 0.09 0.29
---------- --------- ------ -------
Total from Investment Operations .................. 0.88 0.65 0.41 0.61
DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income .......................... (0.61) (0.32) (0.32) (0.31)
Net Realized Gain from Investment Transactions . (0.09) (0.04) -- (0.04)
---------- --------- ------ -------
TOTAL DISTRIBUTIONS ............................... (0.70) (0.36) (0.32) (0.35)
---------- --------- ------ -------
NET ASSET VALUE, END OF PERIOD .................... $ 10.47 $ 10.29 $10.35 $ 10.26
========== ========= ====== =======
TOTAL INVESTMENT RETURN ........................... 8.78% 6.52% 3.60% 6.15%
SUPPLEMENTAL DATA AND RATIOS:
Net Assets, End of Period (000s omitted) ....... $ 39,790 $ 8,119 $ -- $ 242
Ratios to Average Net Assets:
Net Investment Income ....................... 5.70% 6.32%1 5.81%1 6.31%1
Expenses, Including Expenses of the
U.S. Bond Index Portfolio ................. 0.15% 0.15%1 0.35%1 0.35%1
Decrease Reflected in Above Expense Ratio Due
to Absorption of Expenses by Bankers Trust 0.75% 0.71%1 0.29%1 14.53%1
</TABLE>
- --------------
1 Annualized.
2 Commencement of Operations.
3 Advisor Class shares were converted to Institutional Class on July 10, 1998.
See Notes to Financial Statements.
7
<PAGE>
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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 offered two classes of shares to investors during the
year: Institutional Class and Advisor Class shares (the "Classes"). Both classes
of shares had identical rights to earnings, assets and voting privileges, except
that each class had 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. Effective 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 its 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, 1998,
the Fund's proportionate interest in net assets of the Portfolio was
approximately 62%.
The financial statements of the Portfolio, including the Schedule of Portfolio
Investments, are contained elsewhere in this report and should be read in
conjunction with these financial statements.
B. 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 distribute dividends
monthly to shareholders from net investment income, if any. Dividends and
distributions payable to shareholders are recorded by the Fund on the
ex-dividend date. Distributions of net realized short-term and long-term capital
gains, if any, earned by the Fund 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.
F. 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 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"). 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.
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.
ICC Distributors, Inc., a member of the Forum Group of Companies, provides
distribution services to the Fund. For the year ended December 31, 1998, there
were no reimbursable expenses incurred under this agreement.
The Portfolio, in which the Fund invests, is a participant with other affiliated
entities in a revolving credit facility and a discretionary demand line of
credit facility (collectively the "credit facilities") in the amounts of
$50,000,000 and $100,000,000, respectively, which expire March 15, 1999. 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 year
ended December 31, 1998.
8
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U.S. Bond Index Fund
Notes to Financial Statements (Concluded)
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NOTE 3--SHARES OF BENEFICIAL INTEREST
At December 31, 1998, there were an unlimited number of shares of beneficial
interest authorized. Transactions in shares of beneficial interest were as
follows:
Institutional Class Shares(1)(2)
--------------------------------------------------
For the Year Ended For the Period Ended
December 31, 1998 December 31, 1997
--------------------------------------------------
Shares Amount Shares Amount
------------ ----------- ---------- -----------
Sold 2,260,374 $23,757,235 2,756,980 $ 27,731,959
Reinvested 101,987 1,067,174 63,919 653,087
Redeemed (133,268) (1,406,773) (2,031,771) (20,841,880)
Exchanged 780,950 8,121,885 -- --
------------ ----------- ---------- -----------
3,010,043 $31,539,521 789,128 $7,543,166
============ =========== ========== ===========
Advisor Class Shares(1)(2)
--------------------------------------------------
For the Year Ended For the Period Ended
December 31, 1998 December 31, 1997
--------------------------------------------------
Shares Amount Shares Amount
--------- ---------- ------- --------
Sold 762,794 $7,840,310 23,281 $237,843
Reinvested 11,878 122,192 270 2,770
Redeemed (13,500) (139,462) -- --
Exchanged (784,723) (8,121,885) -- --
------------ ---------- ------- ---------
(23,551) $ (298,845) 23,551 $240,613
============ ========== ======= =========
- ------------------
(1) Commencement of operations for the U.S. Bond Index Institutional Class and
Advisor Class was June 30, 1997.
(2) On July 10, 1998 shareholders of the Advisor Class exchanged their shares
into the Institutional Class and the Advisor Class ceased operations.
9
<PAGE>
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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
U.S. Bond Index Fund (one of the funds comprising BT Advisor Funds, hereafter
referred to as the "Fund") at December 31, 1998, and the results of its
operations, the changes in its net assets and the financial highlights for each
of the fiscal periods presented, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1998 by correspondence with the
transfer agent, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Baltimore, Maryland
February 5, 1999
- --------------------------------------------------------------------------------
Tax Information (Unaudited) For the Tax Year Ended December 31, 1998
- --------------------------------------------------------------------------------
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.
Of the ordinary distributions made during the fiscal year ended December 31,
1998, 57.03% have been derived from investing 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.
10
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
U.S. Bond Index Fund
Schedule of Portfolio Investments December 31, 1998
- --------------------------------------------------------------------------------
Principal
Amount Security Value
------ -------- -----
<S> <C> <C>
CORPORATE DEBT NON-CONVERTIBLE - 21.9%
FINANCIAL - 7.7%
American General Finance,
$ 225,000 7.25%, 5/15/05.................. $ 241,900
Bank One Corp.,
200,000 7.125%, 5/15/07................. 218,034
Bankamerica Corp.:
200,000 7.125%, 5/1/06.................. 216,136
200,000 7.125%, 5/12/05................. 214,036
Bankboston Corp.,
260,000 6.38%, 8/11/00.................. 264,030
Chase Manhattan Corp.:
300,000 7.125%, 6/15/09................. 328,584
100,000 10.00%, 6/15/99................. 102,058
Chrysler Financial Corp.,
325,000 6.11%, 7/28/99.................. 326,605
Citigroup Inc.,
200,000 8.625%, 2/1/07.................. 234,906
First Union Corp.,
100,000 7.50%, 7/15/06.................. 110,891
Ford Motor Credit,
200,000 7.20%, 6/15/07.................. 220,344
GMAC,
100,000 9.625%, 5/15/00................. 105,594
Grand Metropolitan Plc,
200,000 6.50%, 9/15/99.................. 201,846
IBM Credit Corp.,
300,000 5.875%, 8/25/99................. 301,224
IBM Corp.,
100,000 6.50%, 1/15/28.................. 104,959
Interamerican Development Bank,
300,000 6.625%, 3/7/07.................. 326,181
Merrill Lynch & Co., Inc.,
300,000 6.64%, 9/19/02.................. 310,707
Motorola Inc.,
200,000 7.60%, 1/1/07................... 227,436
Nationsbank Corp.,
100,000 6.50%, 3/15/06.................. 104,916
Norwest Corp.,
200,000 6.75%, 6/15/07.................. 213,914
PNC Funding Corp.,
300,000 6.875%, 7/15/07................. 320,412
Texaco Capital, Inc.,
100,000 8.50%, 2/15/03.................. 111,733
US Bancorp,
110,000 8.125%, 5/15/02................. 118,886
------------
4,925,332
------------
INDUSTRIAL - 9.5%
Amoco Company,
250,000 6.50%, 8/1/07................... 269,070
Campbell Soup Co.,
250,000 4.75%, 10/1/03.................. 245,487
Conagra, Inc.,
100,000 7.125%, 10/1/26................. 106,065
Dayton Hudson Corp.,
200,000 9.75%, 7/1/02................... 226,002
Dillard's Inc.,
300,000 8.00%, 1/15/99.................. 300,165
E.I. duPont de Nemours Co.,
$ 400,000 8.125%, 3/15/04................. $ 452,872
Federated Department Stores,
300,000 7.45%, 7/15/17.................. 322,956
Ford Motor Co.:
200,000 8.875%, 1/15/22................. 253,041
100,000 6.625%, 10/1/28................. 103,227
Gap, Inc.,
250,000 6.90%, 9/15/07.................. 274,812
General Motors,
200,000 8.80%, 3/1/21................... 257,736
Hanson Overseas,
300,000 6.75%, 9/15/05.................. 316,671
Hertz Corp.,
200,000 7.00%, 7/15/03.................. 208,758
ICI Wilmington,
100,000 6.95%, 9/15/04.................. 101,887
J Seagram & Sons,
150,000 9.65%, 8/15/18.................. 180,333
Lockheed Martin Corp.,
200,000 7.25%, 5/15/06.................. 216,382
Mattel, Inc.,
250,000 6.125%, 7/15/05................. 251,975
McDonalds Corp.,
300,000 8.875%, 4/1/11.................. 383,061
Norfolk Southern Corp.,
100,000 6.95%, 5/1/02................... 103,928
Potash Corp.,
300,000 7.125%, 6/15/07................. 309,081
Proctor & Gamble,
250,000 5.25%, 9/15/03.................. 250,235
Sears, Roebuck & Co.,
300,000 8.30%, 10/26/04................. 337,284
Sony Corporation,
100,000 6.125%, 3/4/03.................. 102,154
Wal-Mart Stores,
300,000 6.50%, 6/1/03................... 315,732
Walt Disney Co.:
100,000 6.375%, 3/30/01................. 102,696
100,000 6.75%, 3/30/06.................. 108,214
------------
6,099,824
------------
UTILITY - 4.7%
Baltimore Gas & Electric Co.,
300,000 8.375%, 8/15/01................. 321,930
Chesapeake & Potomac Telephone,
200,000 7.125%, 1/15/02................. 210,322
Consolidated Edison,
100,000 6.45%, 12/1/07.................. 106,299
Consolidated Natural Gas,
200,000 6.625%, 12/1/08................. 214,742
GTE North, Inc.,
100,000 5.65%, 11/15/08................. 100,746
GTE South, Inc.,
200,000 7.25%, 8/1/02................... 211,978
Lucent Technology,
100,000 5.50%, 11/15/08................. 101,265
National Rural Utilities,
100,000 5.75%, 11/1/08.................. 102,253
See Notes to Financial Statements.
11
<PAGE>
Principal
Amount Security Value
------ -------- -----
Potomac Electric Power,
$ 100,000 6.25%, 10/15/07................. $104,742
Public Service Co. of Co.,
100,000 6.00%, 4/15/03.................. 101,259
Southern California Edison,
200,000 6.375%, 1/15/06................. 209,278
Southwestern Bell,
200,000 7.625%, 3/1/23.................. 216,976
US West Communications,
200,000 6.875%, 9/15/33................. 208,468
Virginia Electric Power,
100,000 7.625%, 7/1/07.................. 113,790
Wisconsin Electric Power,
500,000 7.25%, 8/1/04................... 544,822
Worldcom,
150,000 6.40%, 8/15/05.................. 155,898
------------
3,024,768
------------
Total Corporate Debt Non-Convertible
(Cost $13,579,926)........................ 14,049,924
------------
FOREIGN DEBT - 1.9%
FOREIGN GOVERNMENT - 1.8%
Canada Government,
100,000 5.25%, 11/5/08.................. 100,453
Hydro-Quebec,
100,000 8.40%, 1/15/22.................. 124,396
Kingdom of Sweden,
220,000 12.00%, 2/1/10.................. 340,212
Manitoba Province,
200,000 5.50%, 10/1/08.................. 202,342
Quebec Province,
200,000 7.00%, 1/30/07.................. 216,002
Republic of Finland,
200,000 5.875%, 2/27/06................. 207,170
------------
1,190,575
------------
INDUSTRIAL - 0.1%
Celulosa Arauco Const.,
50,000 7.00%, 12/15/07................. 43,252
------------
Total Foreign Debt (Cost $1,154,186)........ 1,233,827
------------
MEDIUM-TERM NOTES - 3.0% FNMA:
300,000 6.94%, 3/19/07.................. 313,218
500,000 6.96%, 4/2/07................... 551,405
1,000,000 6.00%, 5/15/08.................. 1,055,620
------------
Total Medium-Term Notes
(Cost $1,827,047).......................... 920,243
------------
U.S. GOVERNMENT AND AGENCIES - 33.2%
FHLMC - 4.1%
$ 1,000,000 6.50%, 11/1/23.................. $ 1,008,759
376,769 7.50%, 5/1/24................... 387,010
1,207,852 7.00%, 12/1/24.................. 1,231,804
------------
2,627,573
------------
FNMA - 17.4%
1,000,000 4.75%, 11/14/03................. 987,190
1,000,000 6.50%, 11/1/07.................. 1,015,634
1,560,708 6.00%, 10/1/09.................. 1,570,244
421,709 7.00%, 6/1/12................... 430,823
189,089 7.00%, 7/1/12................... 193,175
2,000,000 7.00%, 9/1/21................... 2,043,142
382,411 8.00%, 12/1/21.................. 396,393
1,000,000 6.50%, 4/1/23................... 1,009,071
1,000,000 6.50%, 4/1/23................... 1,008,134
1,000,000 6.00%, 9/2/23................... 988,339
325,134 7.50%, 1/1/24................... 334,072
533,010 8.50%, 12/1/25.................. 560,492
627,578 7.50%, 4/1/28................... 644,636
------------
11,181,345
------------
FHLB - 1.6%
1,000,000 5.12%, 9/15/03.................. 999,690
------------
FGLMC - 2.1%
432,575 7.00%, 12/1/26.................. 441,153
356,788 7.50%, 5/1/27................... 366,514
180,769 7.00%, 6/1/27................... 184,299
135,899 7.50%, 6/1/27................... 139,561
210,105 7.50%, 7/1/27................... 215,765
------------
1,347,292
------------
GNMA - 5.6%
1,000,000 7.00%, 9/1/21................... 1,024,384
939,984 8.00%, 7/15/22.................. 979,643
215,800 9.00%, 1/15/23.................. 230,589
1,373,907 6.50%, 11/15/23................. 1,389,501
------------
3,624,117
------------
Other - 2.4%
FFCB
1,000,000 5.58%, 9/11/03.................. 1,017,030
FNCL
487,174 8.00%, 7/1/27................... 504,527
------------
1,521,557
------------
Total U.S. Government Agencies
(Cost $21,061,710).............. 21,301,574
------------
See Notes to Financial Statements.
12
<PAGE>
Principal
Amount Security Value
------ -------- -----
U.S. TREASURY SECURITIES - 34.9%
U.S. TREASURY BONDS - 8.8%
$ 540,000 9.25%, 2/15/16.................. $ 774,733
185,000 8.875%, 2/15/19................. 263,481
650,000 8.125%, 8/15/19................. 868,056
100,000 7.125%, 2/15/23................. 123,234
2,550,000 6.75%, 8/15/26.................. 3,054,824
200,000 6.50%, 11/15/26................. 232,813
287,000 6.625%, 2/15/27................. 339,466
-----------
5,656,607
----------
U.S. TREASURY NOTES - 26.1%
4,100,000 6.375%, 5/15/00................. 4,190,979
1,000,000 5.875%, 6/30/00................. 1,017,340
500,000 5.75%, 11/15/00................. 509,685
800,000 5.25%, 1/31/01.................. 809,872
2,500,000 5.625%, 2/28/01................. 2,550,000
150,000 6.625%, 7/31/01................. 157,172
1,000,000 7.875%, 8/15/01................. 1,078,120
51,200 3.625%, 7/15/02 (TIPS)........... 50,816
500,000 6.00%, 7/31/02.................. 521,095
1,100,000 5.50%, 2/28/03.................. 1,133,176
1,500,000 5.50%, 3/31/03.................. 1,545,514
1,400,000 7.875%, 2/15/21................. 1,841,224
580,000 8.125%, 5/15/21................. 782,455
400,000 8.125%, 8/15/21................. 540,500
-----------
16,727,948
----------
TOTAL U.S. TREASURY SECURITIES
(Cost $21,670,020).............. 22,384,555
----------
SHORT TERM INVESTMENTS - 16.3%
10,493,283 BT Institutional Cash Management
(Cost $10,493,283).............. $10,493,283
----------
Total Investments (Cost $69,786,172). 111.2% 71,383,406
Liabilities in Excess of Assets...... (11.2)% (7,188,694)
------- ----------
Net Assets .......................... 100.0% $64,194,712
======== ==========
</TABLE>
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
TIPS - Treasury Inflation Protected Security
See Notes to Financial Statements.
13
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
U.S. Bond Index Portfolio
Statement of Assets and Liabilities December 31, 1998
- --------------------------------------------------------------------------------
<S> <C>
ASSETS
Investment at value (Cost of $69,786,172)......................... $71,383,406
Interest Receivable .............................................. 936,687
Receivable for Securities Sold ................................... 1,006,488
Other Assets ..................................................... 1,696
-----------
Total Assets ........................................................ 73,328,277
-----------
LIABILITIES
Due to Bankers Trust ............................................. 2,274
Payable for Securities Purchased ................................. 9,109,326
Accrued Expenses and Other ....................................... 21,965
-----------
Total Liabilities ................................................... 9,133,565
-----------
NET ASSETS .......................................................... $64,194,712
===========
COMPOSITION OF NET ASSETS
Paid-in Capital ................................................. $62,597,478
Net Unrealized Appreciation on Investments ...................... 1,597,234
-----------
NET ASSETS ......................................................... $64,194,712
===========
</TABLE>
- --------------------------------------------------------------------------------
Statement of Operations For the year ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME
Dividends .......................................................... $ 178,340
Interest ........................................................ 2,523,354
-----------
Total Investment Income ....................................... 2,701,694
-----------
EXPENSES
Advisory Fees ................................................... 67,925
Professional Fees ............................................... 28,172
Administration and Service Fees ................................. 22,642
Trustees Fees ................................................... 3,234
Miscellaneous ................................................... 4,716
-----------
Total Expenses .................................................. 126,689
Less: Expenses Absorbed by Bankers Trust ........................ (81,749)
-----------
Net Expenses .................................................. 44,940
-----------
NET INVESTMENT INCOME .............................................. 2,656,754
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net Realized Gain from Investment Transactions .................. 208,459
Net Change in Unrealized Appreciation/Depreciation on Investments 879,816
-----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS .................... 1,088,275
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS ......................... $ 3,745,029
===========
</TABLE>
See Notes to Financial Statements.
14
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
U.S. Bond Index Portfolio
STATEMENTS OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------------
FOR THE PERIOD
FOR THE JUNE 10, 19972
YEAR ENDED THROUGH
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------ ------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS
Net Investment Income ........................................... $ 2,656,754 $ 1,394,346
Net Realized Gain from Investment Transactions .................. 208,459 604,278
Net Change in Unrealized Appreciation/Depreciation on Investments 879,816 717,418
------------ ------------
Net Increase in Net Assets from Operations ......................... 3,745,029 2,716,042
------------ ------------
CAPITAL TRANSACTIONS
Proceeds from Capital Invested .................................. 40,754,986 49,551,623
Value of Capital Withdrawn ...................................... (11,163,198) (21,409,870)
------------ ------------
Net Increase in Net Assets from Capital Share Transactions ......... 29,591,788 28,141,753
------------ ------------
TOTAL INCREASE IN NET ASSETS ....................................... 33,336,817 30,857,795
NET ASSETS
Beginning of Period ................................................ 30,857,895 100
------------ ------------
End of Period ...................................................... $ 64,194,712 $ 30,857,895
============ ============
</TABLE>
- --------------------------------------------------------------------------------
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, 19972
YEAR ENDED THROUGH
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------ -------------------
<S> <C> <C> <C>
SUPPLEMENTAL DATA AND RATIOS:
Net Assets, End of Period (000s omitted) ........................... $ 64,195 $30,858
Ratios to Average Net Assets:
Net Investment Income ........................................... 6.02% 6.31%1
Expenses ........................................................ 0.10% 0.10%1
Decrease Reflected in Above Expense Ratio Due
to Absorption of Expenses by Bankers Trust.................... 0.19% 0.18%1
Portfolio Turnover Rate ............................................ 82% 79%
</TABLE>
- ----------
1 Annualized.
2 Commencement of Operations.
See Notes to Financial Statements.
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 shares of beneficial interests in the Portfolio.
B. Security Valuation
The Portfolio's investments are valued each business day by an independent
pricing service 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. 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.
The Fund may enter into tri-party repurchase agreements with broker-dealers, and
domestic banks. A repurchase agreement is a short-term investment in which the
Fund buys a debt security that the broker agrees to purchase at a set time and
price. The third party, which is the brokers custodial bank, holds the
collateral in a separate account until the repurchase agreement matures. The
agreement ensures that the collateral's market value, including any accrued
interest, is sufficient if the broker defaults.
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"). 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.
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 December 31, 1998 amounted to $178,340 and are included
in dividend income.
The Portfolio is a participant with other affiliated entities in a revolving
credit facility and a discretionary demand line of credit facility (collectively
the "credit facilities") in the amounts of $50,000,000 and $100,000,000,
respectively, which expire March 15, 1999. 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 year ended December 31, 1998.
NOTE 3--PURCHASES AND SALES OF INVESTMENT SECURITIES
The aggregate cost of purchases and proceeds from sales of investments, other
than short-term obligations, for the year ended December 31, 1998, were
$68,382,745 and $35,165,977, respectively. For federal income tax purposes, the
tax basis of investments held at December 31, 1998 was $69,789,196. The
aggregate gross unrealized appreciation was $1,700,755, and aggregate gross
unrealized depreciation for all investments was $106,545 as of December 31,
1998.
16
<PAGE>
- --------------------------------------------------------------------------------
U.S. Bond Index Portfolio
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Trustees and Holders of Beneficial Interest of BT 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 (the
"Portfolio") at December 31, 1998, and the results of its operations, the
changes in its net assets and the financial highlights for each of the fiscal
periods presented, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Portfolio's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1998 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Baltimore, Maryland
February 5, 1999
17
<PAGE>
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<PAGE>
This page intentionally left blank.
<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 the Fund's current prospectus.
---------------------------
U.S. Bond Index Fund - Institutional Class Cusip #05576L700
U.S. Bond Index Fund - Advisor Class Cusip #05576L866
STA507200
