MARCH 31, 1999
[LOGO] BT Mutual Funds
BT PreservationPlus
Income Fund
Semi-Annual Report
Trust: BT Investment Funds
Investment Advisor: Bankers Trust Company
<PAGE>
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BT PreservationPlus Income Fund
Table of Contents
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Letter to Shareholders ............................................. 3
BT PreservationPlus Income Fund
Statement of Assets and Liabilities .............................. 6
Statement of Operations .......................................... 6
Statement of Changes in Net Assets ............................... 7
Financial Highlights ............................................. 7
Notes to Financial Statements ...................................... 8
BT PreservationPlus Income Portfolio
Schedule of Portfolio Investments ................................ 10
Statement of Assets and Liabilities .............................. 11
Statement of Operations .......................................... 12
Statement of Changes in Net Assets ............................... 13
Financial Highlights ............................................. 13
Notes to Financial Statements ..................................... 14
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The Fund is not insured by the FDIC and is not a deposit, obligation of or
guaranteed by Bankers Trust Company. The Fund is subject to investment risks,
including possible loss of principal amount invested.
---------------
2
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BT PreservationPlus Income Fund
Letter to Shareholders
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We are pleased to present you with this first semi-annual report for the BT
PreservationPlus Income 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.
Since the Fund has not been in operation for a full six months, performance is
being reported for the life of the Fund as of March 31, 1999.
It is well worth noting that the BT PreservationPlus Income Fund is the first
SEC registered mutual fund that seeks to maintain a constant share price
specifically developed for the IRA marketplace. The Fund is offered to
traditional IRAs, Roth IRAs, education IRAs, simplified employee pension IRAs
(SEP IRAs), savings incentive match plan for employees (SIMPLE IRAs), and Keogh
plans.
MARKET ACTIVITY
During the three months ending March 31, 1999, the U.S. bond market, with the
exception of U.S. Treasuries, rallied, as investors returned with confidence.
Yield spreads in the corporate, mortgage, and asset-backed sectors tightened
substantially with the return of liquidity to the fixed income markets and
volatility seemed to decline with the unwinding of the global crisis
environment. This relative outperformance made what are known as the "spread
sectors" even more attractive.
The U.S. Treasury sector's performance was impacted by reduced concerns over
international turmoil and increased investor demand for the higher yields
offered by other fixed income sectors. The U.S. Treasury Index was also dragged
down by the birth of the Euro currency, Brazilian devaluation, NATO military
action in the Balkans, and in the U.S., heavy merger activity and booming debt
origination.
Specifically, over the first quarter of 1999, the 2-year Treasury bond yield
rose 0.44% to 4.98%. The 5-year Treasury bond yield rose even more, increasing
0.56% to 5.10%. This movement brought the short-to-intermediate portion of the
yield curve back to normalcy from the inverted shape created by the tremendous
flight to quality during the global turmoil in the third calendar quarter of
1998. Thus, the 2 to 5 year spread widened from 0.01% on December 31, 1998 to
0.12% on March 31, 1999. Longer term interest rates also moved higher, with the
30-year Treasury bond yield moving up approximately 0.60% to 5.68% over the
three months.
In contrast, the credit-dependent corporate, mortgage, and asset-backed sectors
produced strong relative performance, with declining implied volatilities,
subsiding refinancing worries, and a continuing reduction of liquidity premiums.
o Corporate bonds outperformed U.S. Treasuries by 1.31% on a
duration-adjusted basis over the first quarter of 1999.
o Mortgages outperformed Treasuries by 0.48% on a duration-adjusted basis
over the same period.
o Asset-backed securities also outperformed Treasuries, these by 1.04% on a
duration-adjusted basis.
INVESTMENT REVIEW
Despite significant market volatility, the Fund met its objective of maintaining
a stable value per share and produced a high level of current income. The Fund's
NAV has stayed steady at $10 per share every day since inception.
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Periods ended March 31, 1999 (unaudited) Cumulative Total Returns
-------------------------
Past 3 Since
months inception(3)
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BT PreservationPlus Income Fund(1)
(inception 12/23/98) 1.26% 1.37%
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Lehman 1-3 Year Government/Corporate Index(2) 0.71% 0.71%
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Ryan Labs 5 Year GIC Index(2) 1.46% 1.46%
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IBC First Tier Retail Money Fund Universe(2) 1.07% 1.07%
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The Fund has been in the start-up phase of its investment lifecycle. Thus,
diversification across the "spread sectors" has not been readily available. As
of March 31, 1999, the portfolio is primarily invested in mortgage pass-through
securities. In the months ahead, we intend to diversify the portfolio to a much
greater degree, weighing the portfolio towards the corporate, asset-backed, and
mortgage sectors, as these sectors have historically offered a higher yield
than U.S. government securities. Fixed income securities, at the time of
purchase, will primarily be in one of the top four long-term rating categories
by Standard & Poor's, Moody's, Duff & Phelps, or other nationally recognized
statistical rating organizations.
The Fund makes use of Wrapper Agreements to seek to maintain principal stability
in the face of fluctuations in values due to changes in yields. To date, we have
entered the Portfolio into one Wrapper Agreement for the fixed income securities
in the Portfolio covered by such Agreements. Generally speaking, Wrapper
Agreements are issued by insurance companies, banks and other financial
institutions. The Wrapper Agreement held by the Portfolio as of March 31, 1999
is issued by Bank of America NT&SA.
- ----------
(1) Performance quoted represents past performance. 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. The Fund
seeks to maintain a constant $10.00 share net asset value. The Fund is not
a money market fund, and there can be no assurance that it will be able to
do so. The Fund will hold fixed income securities, money market
instruments, futures, options, and other instruments, and contracts with
financial institutions, such as insurance companies and banks that are
intended to stabilize the value per share. The Fund is not insured by the
FDIC and is not a deposit, obligation of, or guaranteed by Bankers Trust
Company. The Fund is subject to investment risks, including possible loss
of principal amount invested.
(2) The Lehman 1 to 3 Year Government/Corporate Index, our primary benchmark,
is a total return index consisting of all U.S. Government agency
securities, U.S. Government Treasury securities, and all investment grade
corporate debt securities with maturities of one to three years. We also
compare our performance to the Ryan Labs 5 Year GIC Index, a custom index
consisting of an arithmetic mean to 5 year GIC contract rates, assuming
each contract is held to full term. This index more closely reflects the
market sector in which the Fund invests. Indexes are unmanaged, and
investments cannot be made in an index. During the period the Fund waived
certain fees and expenses. Had these fees and expenses not been waived, the
Fund's return would have been lower.
(3) The benchmarks for the Since Inception time period are calculated from
December 31, 1998.
3
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BT PreservationPlus Income Fund
Letter to Shareholders
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Diversification of Portfolio Investments
By Theme as of March 31, 1999
(percentages are based on net assets)
The printed document contains a pie chart depicting the following
percentages:
Mortgage Backed 92%
Money Market Mutual Fund 4%
Other 1%
Asset Backed Securities 3%
MANAGER OUTLOOK
We anticipate that despite softness in some key employment statistics toward the
end of March, the U.S. labor market and the U.S. economy will remain strong.
Consumer fundamentals remain favorable, consumer spending shows no signs of
slowing, and housing activity is still high. Indeed, even the industrial sector,
which has been the weak link in the U.S. economic juggernaut, has begun to show
signs of life. Further, we do not expect anything dramatic on the inflation
front soon. Given this scenario, we believe the Federal Reserve Board is likely
to stay on hold at least into the summer, keeping market interest rates moving
within a fairly narrow range.
Thus, for the near term, we expect yield spreads in the corporate, mortgage, and
asset-backed sectors to remain firm as technicals strengthen, high quality issue
supply slows, and economic storm clouds dissipate. We believe, in turn, that
these conditions should present us with attractive, though limited,
opportunities to invest new cash flows at higher yield spreads, and we look
forward to broadening the Fund's holdings across the "spread sectors" with the
receipt of principal, interest, and participant contributions.
Over the longer-term horizon, we maintain our generally positive outlook on the
U.S. fixed income markets. More than ever, the U.S. economy and financial
markets serve as an engine for the rest of the world. To be sure, strong growth
and low inflation are helping the U.S. equity markets, but there are concerns.
First, rising commodity prices and some evidence of manufacturing price
pressures suggest some greater inflation down the road. Second, there is
palpable concern about narrowing corporate profit margins. Technical
uncertainties, such as those presented by Y2K concerns, as well as fundamental
anxieties over possible negative surprises from Japan/China and the ongoing
bullishness of the equity markets, are also calling for increased diligence and
vigilance over portfolio management. That is why the stringent analysis used by
Bankers Trust's portfolio management team to structure the Fund's portfolio is
so important.
We will maintain our long-term perspective for the Fund, monitoring economic
conditions and how they affect the financial markets, as we seek to provide a
high level of current income while seeking to maintain a stable value per share.
We value your support of the PreservationPlus Income Fund and look forward to
serving your investment needs in the years ahead.
[Signature of Eric Kirsch]
[Signature of Louis R. D'Arienzo]
[Signature of John Axtell]
Eric Kirsch, John Axtell and Louis R. D'Arienzo
Portfolio Managers of the
PreservationPlus Income Portfolio
March 31, 1999
4
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BT PreservationPlus Income Fund
Performance Comparison
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Comparison of Change in Value of a $10,000 Investment in the BT PreservationPlus
Income Fund since December 23, 1998.
Total Return for the Period December 23, 1998(1) through March 31, 1999(3)
One Year Since 12/23/98(1)
5.22%(2) 5.22%(2)
(1) The Fund's inception date.
(2) Annualized.
(3) Unaudited.
Investment return and principal value may fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
The printed document contains a line graph depicting the following plot
points:
Lehman IBC
BT 1-3 Year First Tier Ryan Labs
PreservationPlus Government/Corporate Money Market 5 Year
Income Fund Index Universe GIC Index
---------------- -------------------- ------------ ----------
Dec-98 $10,000 $10,000 $10,000 $10,000
Mar-99 $10,137 $10,071 $10,107 $10,146
Past performance is not indicative of future performance. Performance figures
assume the reinvestment of dividends and capital gain distributions.
5
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BT PreservationPlus Income Fund
Statement of Assets and Liabilities March 31, 1999 (unaudited)
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Assets
Investment in PreservationPlus Income Portfolio, at Value ... $101,189
Due from Bankers Trust ...................................... 24,447
--------
Total Assets ..................................................... 125,636
--------
Liabilities
Dividend Payable ............................................ 417
Accrued Expenses and Other .................................. 24,506
--------
Total Liabilities ................................................ 24,923
--------
Net Assets ....................................................... 100,713
========
Composition of Net Assets
Paid-in Capital ............................................. 100,713
Net Unrealized Depreciation on Investment ................... (272)
Unrealized Appreciation Wrappers Agreement .................. 272
--------
Net Assets ....................................................... $100,713
========
Shares Outstanding ($0.001 par value per share,
unlimited number of shares of beneficial
interest authorized) .......................................... 10,071
========
Net Asset Value, Offering and Redemption Price Per Share
(net assets divided by shares outstanding) .................... $ 10.00
========
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Statement of Operations (unaudited)
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<TABLE>
<CAPTION>
For the Period
December 23, 1998(1)
through
March 31, 1999
--------------------
<S> <C>
Investment Income
Income net of expenses allocated from
PreservationPlus Income Portfolio ........................... $ 739
--------
Expenses
Printing and Shareholder Reports .............................. 10,204
Registration Fees ............................................. 7,840
Professional Fees ............................................. 4,428
Trustees Fees ................................................. 1,054
Administration and Service Fees ............................... 45
Miscellaneous Fees ............................................ 980
--------
Total Expenses ................................................ 24,551
Less Expenses absorbed by Bankers Trust ....................... (24,493)
--------
Net Expenses .................................................. 58
--------
Net Investment Income ............................................ 681
--------
Net Change in Unrealized Appreciation/Depreciation on:
Investment ................................................. (272)
Wrapper Agreement .......................................... 272
--------
Net Unrealized Gain (Loss) on Investments and
Wrapper Agreements ............................................. --
--------
Net Increase in Net Assets from Operations ....................... $ 681
========
</TABLE>
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(1) Commencement of operations
See Notes to Financial Statements.
6
<PAGE>
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BT PreservationPlus Income Fund
Statement of Changes in Net Assets (unaudited)
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<TABLE>
<CAPTION>
For the Period
December 23, 1998(1)
through
March 31, 1999
-------------------
<S> <C>
Increase in Net Assets:
Operations
Net Investment Income ......................................... $ 681
Net Change in Unrealized Depreciation on Investment ........... (272)
Net Change in Unrealized Appreciation on Wrapper Agreement .... 272
---------
Net Increase in Net Assets Resulting from Operations .......... 681
---------
Distributions to Shareholders
Net Investment Income ......................................... (681)
Capital Transactions in Shares of Beneficial Interest
Proceeds from Sales of Shares ................................. 100,450
Dividend Reinvestments ........................................ 263
Cost of Shares Sold ........................................... --
---------
Net Increase in Net Assets from Capital Transactions in
Shares of Beneficial Interest .................................. 100,713
---------
Total Increase in Net Assets ..................................... 100,713
Net Assets
Beginning of Period ........................................... --
---------
End of Period ................................................. $ 100,713
=========
</TABLE>
- ----------
(1) Commencement of operations
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Financial Highlights (unaudited)
- --------------------------------------------------------------------------------
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.
<TABLE>
<CAPTION>
For the Period
December 23, 1998(1)
through
March 31, 1999
--------------------
<S> <C>
Per Share Operating Performance:
Net Asset Value, Beginning of Period .......................... $10.00
------
Income from Investment Operations
Net Investment Income ...................................... 0.13
Distributions to Shareholders
Net Investment Income ...................................... (0.13)
------
Net Asset Value, End of Period ................................ $10.00
======
Total Investment Return ....................................... 5.22%(2)
Supplemental Data and Ratios:
Net Assets, End of Period (000s omitted) ................... $ 101
Ratios to Average Net Assets:
Net Investment Income ................................... 5.09%(2)
Net Expenses, Including Expenses of the
PreservationPlus Income Portfolio .................... 1.25%(2)
Decrease Reflected in Above Expense Ratio Due to
Absorption of Expenses by Bankers Trust .............. 184%(2)
</TABLE>
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(1) Commencement of operations
(2) Annualized
7
<PAGE>
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BT PreservationPlus Income Fund
Notes to Financial Statements (unaudited)
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Note 1--Organization and Significant Accounting Policies
A. Organization
BT Investment Mutual Funds (the "Trust") is registered under the Investment
Company Act of 1940 (the "Act"), as amended, as an open-end management
investment company. The Trust was organized on July 21, 1986, as a business
trust under the laws of the Commonwealth of Massachusetts. The PreservationPlus
Income Fund (the "Fund") is one of the funds offered to investors by the Trust.
The Fund commenced operations and began offering shares of beneficial interest
on December 23, 1998. The Fund invests substantially all of its assets in the
Portfolio (the "Portfolio"). The Portfolio is an open-end management investment
company registered under the Act. The Fund seeks to achieve its investment
objective by investing all of its investable assets in the Portfolio. The value
of such investment in the Portfolio reflects the Fund's proportionate interest
in the net assets of the Portfolio. At March 31, 1999, the Fund's investment was
approximately 2% of the Portfolio.
The financial statements of the Portfolio, including a list of assets held are
contained elsewhere in this report and should be read in conjunction with the
Fund's financial statements.
B. Security Transactions and Related Investment Income
Security transactions are accounted for on the trade date. Realized gains and
losses on investments sold are computed on the basis of identified cost. The
realized and unrealized gains and losses in the Statement of Operations
represent the results related to the Fund's underlying assets and the offsetting
valuation change of the Wrapper Agreements.
The Fund earns income, net of expenses, on its investment in the Portfolio. All
of the net investment income and net realized and unrealized gains and losses
(including Wrapper Agreements) of the Portfolio are allocated pro rata among the
investors in the Portfolio on a daily basis.
C. Distributions
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 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 gains determined
annually in accordance with federal tax regulations which may differ from
generally accepted accounting principles.
E. Other
The Trust accounts separately for the assets, liabilities and operations of the
Fund. Expenses directly attributable to the Fund are charged to that Fund, while
expenses that are attributable to the Trust are allocated among the Funds in the
Trust.
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 0.35% of average daily net assets.
The Fund is also subject to shareholder servicing fees in the maximum amount of
0.25% of average daily net assets.
ICC Distributors, Inc., a member of the Forum Group of Companies, provides
distribution services to the Fund.
Bankers Trust has voluntarily undertaken to waive its fees and reimburse
expenses of the Fund, to the extent necessary to limit all expenses to .45% of
the average daily net assets of the Fund, excluding expenses of the Portfolio
and 1.25% of the average daily net assets of the Fund, including expenses of the
Portfolio.
Bankers Trust Company is a wholly owned subsidiary of Bankers Trust Corporation.
On November 30, 1998, Bankers Trust Corporation entered into an Agreement and
Plan of Merger with Deutsche Bank AG under which Bankers Trust Corporation would
merge with and into a subsidiary of Deutsche Bank AG. Deutsche Bank AG is a
major global banking institution that is engaged in a wide range of financial
services, including investment management, mutual funds, retail and commercial
banking, investment banking and insurance. The transaction is contingent upon
various regulatory approvals, and continuation of the Fund's advisory
relationship with Bankers Trust thereafter is subject to the approval of Fund
shareholders. If the transaction is approved and completed, Deutsche Bank AG, as
Bankers Trust's new parent company, will control its operations as investment
adviser. Bankers Trust believes that, under this new arrangement, the services
provided to the Fund will be maintained at their current level.
8
<PAGE>
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BT PreservationPlus Income Fund
Notes to Financial Statements (unaudited)
- --------------------------------------------------------------------------------
Note 3--Shares of Beneficial Interest
At March 31, 1999, there were an unlimited number of shares of beneficial
interest authorized. Transactions in shares of beneficial interest for the
fiscal periods ended March 31, 1999 were as follows:
For the period ended
March 31, 1999 (unaudited)
--------------------------
Shares Amount
------ --------
Sold 10,045 $100,450
Reinvested 26 263
Redeemed -- --
------ --------
10,071 $100,713
====== ========
9
<PAGE>
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BT PreservationPlus Income Portfolio
Schedule of Portfolio Investments March 31, 1999 (unaudited)
- --------------------------------------------------------------------------------
Principal
Amount Security Value
- --------- -------- ----------
ASSET BACKED SECURITIES - 2.9%
150,000 Vendee Mortgage Trust, 7.500%, 8/15/17 ................ $ 153,422
Total Asset Backed Securities
(Cost $154,263)................................................. 153,422
----------
MORTGAGE BACKED SECURITIES - 92.4%
1,477,889 FHLMC Gold,
8.000%, 3/1/27....................................... 1,535,215
FNCL,
1,093,614 6.500%, 9/1/28 ...................................... 1,088,659
1,087,370 6.500%, 10/1/28 ..................................... 1,082,444
1,081,161 6.500%, 12/1/28 ..................................... 1,076,262
----------
Total Mortgage Backed Securities
(Cost $4,804,044)............................................... 4,782,580
----------
SHORT TERM INVESTMENT - 4.1%
Mutual Fund - 1.0%
211,394 BT Institutional Cash Management Fund ................. 211,394
----------
Total Short Term Investment
(Cost $211,394)................................................. 211,394
----------
Total Investments
(Cost $5,169,701)........................................ 99.4% $5,147,396
----- ----------
WRAPPER AGREEMENT - 0.4%
Bank of America NT&SA............................................. 22,980
----------
Other Assets Less Liabilities ............................. 0.2% 7,281
----- ----------
Net Assets ................................................ 100.0% $5,177,657
===== ==========
See Notes to Financial Statements.
10
<PAGE>
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BT PreservationPlus Income Portfolio
Statement of Assets and Liabilities March 31, 1999 (unaudited)
- --------------------------------------------------------------------------------
Assets
Investment (Cost $5,169,701) ................................ $5,147,396
Interest Receivable ......................................... 31,012
Wrapper Agreement ........................................... 22,980
Prepaid Expenses ................. .......................... 3,195
----------
Total Assets ................................................... 5,204,583
----------
Liabilities
Due to Bankers Trust ........................................ 16,489
Accrued Expenses and Other .................................. 10,437
----------
Total Liabilities .............................................. 26,926
----------
Net Assets ..................................................... $5,177,657
==========
Composition of Net Assets
Paid-in Capital ............................................. 5,177,657
----------
Net Assets ..................................................... $5,177,657
==========
11
<PAGE>
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BT PreservationPlus Income Portfolio
Statement of Operations (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period
December 23, 1998(1)
through
March 31, 1999
--------------------
<S> <C>
Investment Income
Interest Income ......................................................... $ 87,367
Credited Rate Interest .................................................. 675
--------
Total Investment Income .................................................... 88,042
--------
Expenses
Advisory Fees ........................................................... 9,656
Professional Fees ....................................................... 7,675
Wrapper Fees ............................................................ 2,896
Trustees Fees ........................................................... 882
Administration and Service Fees ......................................... 690
Miscellaneous Fees ...................................................... 447
--------
Total Expenses .......................................................... 22,246
Less: Expenses absorbed by Bankers Trust ................................ (11,210)
--------
Net Expenses ......................................................... 11,036
--------
Net Investment Income ...................................................... 77,006
--------
Net Realized and Unrealized Gain (Loss) on Investments and Wrapper Agreement
Net Change in Unrealized Appreciation/Depreciation on:
Investments ........................................................ (22,305)
Wrapper Agreement ....................................................... 22,305
--------
Net Realized and Unrealized Gain (Loss) on Investments and Wrapper Agreement --
--------
Net Increase in Net Assets from Operations ................................. $ 77,006
========
</TABLE>
- ----------
(1) Commencement of operations
See Notes to Financial Statements.
12
<PAGE>
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BT PreservationPlus Income Portfolio
Statements of Changes in Net Assets (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period
December 23, 1998(1)
through
March 31, 1999
--------------------
<S> <C>
Increase in Net Assets from:
Operations
Net Investment Income ....................................... $ 77,006
Net Change in Unrealized Depreciation on Investments ........ (22,305)
Net Change in Unrealized Appreciation on Wrapper Agreement .. 22,305
-----------
Net Increase in Net Assets from Operations ..................... 77,006
-----------
Capital Transactions
Proceeds from Capital Invested .............................. 5,100,914
Value of Capital Withdrawn .................................. (263)
-----------
Net Increase in Net Assets from Capital Transactions ........... 5,100,651
-----------
Total Increase in Net Assets ................................... 5,177,657
Net Assets
Beginning of Period ............................................ --
-----------
End of Period .................................................. $ 5,177,657
===========
</TABLE>
- ----------
(1) Commencement of operations
- --------------------------------------------------------------------------------
Financial Highlights (unaudited)
- --------------------------------------------------------------------------------
Contained below are selected ratios to average net assets and other supplemental
data for the period indicated for the PreservationPlus Income Portfolio.
<TABLE>
<CAPTION>
For the Period
December 23, 1998(1)
through
March 31, 1999
---------------------
<S> <C>
Supplemental Data and Ratios:
Net Assets, End of Period (000s omitted) ....................... $5,178
Ratios to Average Net Assets:
Net Investment Income ....................................... 5.64%
Expenses .................................................... 0.80%
Decrease Reflected in the Above Expense Ratio Due
to Absorption of Expenses by Bankers Trust ................ 0.82%
Portfolio Turnover Rate ........................................ 0%
</TABLE>
- ----------
(1) Commencement of operations
See Notes to Financial Statements.
13
<PAGE>
- --------------------------------------------------------------------------------
BT PreservationPlus Income Portfolio
Notes to Financial Statements (unaudited)
- --------------------------------------------------------------------------------
Note 1--Organization and Significant Accounting Policies
A. Organization
The PreservationPlus Income 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 and commenced
operations on December 23, 1998 as an unincorporated trust under the laws of New
York. The Declaration of Trust permits the Board of Trustees (the "Trustees") to
issue beneficial interests in the Portfolio.
B. Security Valuation
Debt securities (other than short-term debt obligations maturing in 60 days or
less), including listed securities and securities for which price quotations are
available, will normally be valued on the basis of market valuations furnished
by a pricing service. Such market valuations may represent the last quoted price
on the securities' major trading exchange or quotes received from dealers or
market makers in the relevant securities or may be determined through the use of
matrix pricing. In matrix pricing, pricing services may use various pricing
models, involving comparable securities, historic relative price movements,
economic factors and dealer quotations. Over-the-counter securities will
normally be valued at the bid price. Short-term debt obligations and money
market securities maturing in 60 days or less are valued at amortized cost.
Securities for which market quotations are not readily available are valued by
Bankers Trust pursuant to procedures adopted by the Portfolio's Trust Board.
Wrapper Agreements generally will be equal to the difference between the Book
Value and Market Value (plus the crediting rate adjustment) on the applicable
covered assets and will either be reflected as an asset or liability of the
Portfolio. The Portfolio's Trust Board in performing its fair value
determination of the Portfolio's Wrapper Agreements considers the
creditworthiness and the ability of Wrapper Providers to pay amounts due under
the Wrapper Agreements.
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 security transactions
are recorded on the identified cost basis. The credited rate interest represents
the actual interest earned on covered assets under the Portfolio's Wrapper
Agreements (the "agreements") plus or minus an adjustment for an amount
receivable from or payable to the wrapper provider based on fluctuation in the
market value of covered assets under the agreements.
All of the net investment income and net realized and unrealized gains and
losses (including the Wrapper Agreements) of the Portfolio are allocated pro
rata to the investors in the Portfolio on a daily basis.
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
The Portfolio is considered a partnership under the Internal Revenue Code.
Therefore, no federal income tax provision is necessary.
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 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 0.70% 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
0.80% 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
14
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BT PreservationPlus Income Portfolio
Notes to Financial Statements (unaudited)
- --------------------------------------------------------------------------------
option to the Portfolio and other accounts managed by the Company. Distributions
from the Fund to the Portfolio for the six months ended March 31, 1999 amounted
to $4,703.
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. A commitment fee of 0.07% per annum on the average daily amount of
the available commitment is payable on a calendar quarter 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
0.45%. No amounts were drawn down or outstanding under the credit facilities as
of and for the six months ended March 31, 1999.
Bankers Trust Company is a wholly owned subsidiary of Bankers Trust Corporation.
On November 30, 1998, Bankers Trust Corporation entered into an Agreement and
Plan of Merger with Deutsche Bank AG under which Bankers Trust Corporation would
merge with and into a subsidiary of Deutsche Bank AG. Deutsche Bank AG is a
major global banking institution that is engaged in a wide range of financial
services, including investment management, mutual funds, retail and commercial
banking, investment banking and insurance. The transaction is contingent upon
various regulatory approvals, and continuation of the Fund's advisory
relationship with Bankers Trust thereafter is subject to the approval of Fund
shareholders. If the transaction is approved and completed, Deutsche Bank AG, as
Bankers Trust's new parent company, will control its operations as investment
adviser. Bankers Trust believes that, under this new arrangement, the services
provided to the Fund will be maintained at their current level.
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 March 31, 1999, were $5,045,874
and $0, respectively. For federal income tax purposes, the tax basis of
investments held at March 31, 1999, was $5,169,701. The aggregate gross
unrealized appreciation was $5,512, and the aggregate gross unrealized
depreciation for all investments was $27,817 as of March 31, 1999.
Note 4--Wrapper Agreements
The Portfolio will enter into Wrapper Agreements with insurance companies, banks
or other financial institutions ("Wrapper Providers") that are rated, at the
time of purchase, in one of the top two long-term rating categories by Moody's
or S&P. A wrapper agreement is a derivative instrument that is designed to
protect the portfolio from investment losses and under most circumstances permit
the Fund to maintain a constant NAV per share. There is no active trading market
for Wrapper Agreements, and none is expected to develop; therefore, they will be
considered illiquid.
A default by the issuer of a Portfolio Security or a Wrapper Provider on its
obligations might result in a decrease in the value of the Portfolio assets and,
consequently, the Shares. The Wrapper Agreements generally do not protect the
Portfolio from loss if an issuer of Portfolio Securities defaults on payments of
interest or principal. Additionally, a Fund shareholder may realize more or less
than the actual investment return on the Portfolio Securities depending upon the
timing of the shareholder's purchases and redemption of Shares, as well as those
of other shareholders.
Note 5--Subsequent Event
Subsequent to period end, the portfolio has entered into a $100,000,000 364-day
senior unsecured committed revolving credit facility ("the facility") with two
lenders. The borrowings shall bear interest at a rate based on the Federal Funds
rate. A commitment fee is charged on the unused portion of the facility. The
facility replaces the revolving credit facility described in footnote 2.
15
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Investment Advisor and Administrator of the Portfolio
Bankers Trust Company
130 Liberty Street
New York, NY 10006
Distributor
ICC Distributors, Inc.
Two Portland Square
Portland, ME 04101
Custodian and Transfer Agent
Bankers Trust Company
130 Liberty Street
New York, NY 10006
Independent Auditors
ERNST & YOUNG LLP
787 7th Avenue
New York, NY 10019
Counsel
Willkie Farr & Gallagher
787 7th Avenue
New York, NY 10019
[LOGO]
For information on how to invest, shareholder account information and current
price and yield information, please contact your relationship manager or write
to us at:
BT Service Center
P.O. Box 419210
Kansas City, MO 64141-6210
or call our toll-free number: 1-800-730-1313
This report must be preceded or accompanied by a current prospectus for the
Fund.
BT PreservationPlus Income Fund CUSIP #055922660
BT Investment Funds 815 SA (3/99)
Distributed by:
ICC Distributors, Inc.
Two Portland Square
Portland, ME 04101
