[GRAPHIC OMITTED] BT Mutual Funds
PreservationPlus
Income Fund
Annual Report
Trust: BT Investment Funds
Investment Advisor: Bankers Trust Company
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PreservationPlus Income Fund
Table of Contents
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Letter to Shareholders........................................................ 3
PreservationPlus Income Fund
Statement of Assets and Liabilities ....................................... 6
Statement of Operations ................................................... 7
Statement of Changes in Net Assets ........................................ 8
Financial Highlights ...................................................... 8
Notes to Financial Statements ............................................. 9
Report of Independent Auditors ............................................10
PreservationPlus Income Portfolio
Schedule of Portfolio Investments .........................................11
Statement of Assets and Liabilities .......................................12
Statement of Operations ...................................................13
Statement of Changes in Net Assets ........................................14
Financial Highlights ......................................................14
Notes to Financial Statements .............................................15
Report of Independent Auditors ............................................18
Proxy Results ................................................................19
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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.
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2
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PreservationPlus Income Fund
Letter to Shareholders
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We are pleased to present you with this first annual report for the
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 twelve months, performance
is being reported for the life of the Fund as of September 30, 1999.
The PreservationPlus Income Fund is the first SEC registered mutual fund
specifically designed as an investment alternative for individuals with IRAs
previously invested in money market funds, savings accounts and CDs, as well as
rollovers from retirement programs invested in traditional GIC commingled funds
and other stable value products. It is well worth noting that until this Fund
was introduced in December 1998, the only alternative retirement plan rollovers
had for their conservative, stable value assets was money market funds. The
PreservationPlus Income Fund seeks to deliver returns above those of money
market funds while maintaining a constant share price. 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
Overall, the U.S. bond market was dominated by a dramatic increase in interest
rates during the fiscal year ended September 30, 1999.
A myriad of political and economic events boosted the "spread sectors" but
lofted the U.S. yield curve across all maturities over the first portion of the
Fund's fiscal year, dragging down the performance of U.S. Treasury securities.
o The birth of the Euro currency, Brazilian devaluation, NATO military action
in the Balkans and heavy merger activity and booming debt origination in the
U.S. were just some of the factors that led to disappointing returns from
U.S. Treasuries. The Treasury market conceded to reduced concerns over
international turmoil and increased investor demand for the higher yields
offered by other fixed income sectors.
o In contrast, the corporate, mortgage and asset-backed sectors rallied, as
yield spreads tightened substantially with the return of liquidity to the
fixed income markets. The mortgage and corporate bond sectors reacted
favorably to three Federal Reserve Board easings in the Fall of 1998,
interest rate cuts in a number of other countries, and better coordination
of international monetary policy. All three of the credit-dependent "spread
sectors"--i.e. corporate, mortgage, and asset-backed--flourished with
declining implied volatilities, subsiding refinancing worries, and a
continuing reduction of liquidity premiums.
During the six months ended September 30, 1999, virtually all of the U.S. fixed
income sectors were impacted by higher interest rates, renewed inflation fears,
and a reversal in Federal Reserve Board policy.
o To guard against the perceived risks of inflationary pressures brought on by
an improving global economy, a still strong U.S. economy, and an extremely
tight labor market, the Federal Reserve Board acted twice during the summer
of 1999. The Fed raised the fed funds rate by 0.25% each on June 30 and
August 24. We believe the hike in rates marked a movement from the low
growth/low yield environment of 1998 to the medium growth/medium yield arena
of 1999.
o U.S. Treasury yields continued to move sharply higher. For example, the
5-year U.S. Treasury note rose 0.66% in the last six months of the Fund's
fiscal year.
o The "spread sectors" were impacted to an even greater degree,
underperforming U.S. Treasuries for the six months ended September 30, 1999.
During the second calendar quarter, yields on these sectors moved higher
across all maturities, as yield spreads came under pressure from increased
new issue offerings and concerns over prepayment volatility in the mortgage
market. During the third calendar quarter, yield spreads on corporate bonds
widened, as investors' concerns grew over the credit implications of
increased inflation and its effect on earnings, while yield spreads on
asset-backed securities tightened in September, as the new issue calendar
failed to meet earlier volume expectations. Mortgage securities' yields rose
dramatically in September, primarily due to higher interest rates and slower
prepayments.
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 remained steady at $10 per share every day since inception.
The Portfolio is invested across major sectors of the investment grade fixed
income market. As of September 30, 1999, the Portfolio
Periods ended September 30, 1999 Cumulative Total Returns
------------------------
Past 6 Since
months inception/3
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PreservationPlus
Income Fund/1
(inception 12/23/98) 3.05% 4.46%
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Lehman 1-3 Year Government/
Corporate Index/2 1.79% 2.52%
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Wrapped Lehman Intermediate
Aggregate Index/2 2.78% 4.15%
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IBC First Tier Retail Money
Fund Universe/2 2.21% 3.30%
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___________
1/ Performance quoted represents past performance. 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 or Deutsche Bank. The Fund is
subject to investment risks, including possible loss of principal amount
invested. Advance notice of plan withdrawal may be necessary to avoid a
redemption fee (see the Fund's prospectus for details).
2/ In addition to the IBC Money Fund Average, we use two alternative benchmarks.
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 have changed our
second benchmark from the Ryan Labs 5 Year GIC Index, comparing our
performance instead to the Wrapped Lehman Intermediate Aggregate Index. This
index more closely reflects the market sectors in which the Funds invests.
Indexes are unmanaged, and investments cannot be made in an index.
3/ The benchmarks for the Since Inception time period are calculated from
December 31, 1998.
3
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PreservationPlus Income Fund
Letter to Shareholders
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Diversification of Portfolio Investments
By Theme as of September 30, 1999
(percentages are based on market value)
Mortgage Backed 37%
Asset Backed 12%
Foreign Debt 8%
Industrial 19%
Financial Services 7%
Money Market Fund 14%
U.S. Treasury 3%
is allocated 26% to corporate bonds, 37% to mortgage-backed securities, 12% to
asset-backed securities, 3% to U.S. Treasuries, 8% to foreign bonds, and 14% to
cash equivalents. This allocation of fixed income securities is intentionally
weighted towards the corporate and mortgage sectors, as these sectors have
historically offered higher yields than U.S. government securities. The Fund has
employed its Global Asset Allocation (GAA) overlay strategy, which evaluates
equity, bond, cash, and currency opportunities across domestic and international
markets. Additionally, the Fund has entered into Wrapper Agreements that are
intended to stabilize the Fund's NAV.
The Fund is the first SEC registered mutual fund for IRA investors to make 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 negotiated two
Wrapper Agreements, each of which covers approximately one half of the fixed
income securities and GAA strategy in the Portfolio covered by such Agreements.
Generally speaking, Wrapper Agreements are issued by insurance companies, banks
and other financial institutions. The Wrapper Agreements held by the Portfolio
as of September 30, 1999 are issued by Bank of America NT&SA and Transamerica
Life Insurance & Annuity Co. This was a successful strategy for the Fund.
The Fund has maintained a high quality portfolio. The average credit quality of
investments in the Fund at the end of the fiscal year was AA, as measured by
Standard & Poor's. The average quality of the issuers of the Wrapper Agreements
at that time was also AA, as measured by Standard & Poor's. The Fund's duration
at September 30, 1999 stood at 3.64 years.
MANAGER OUTLOOK
Economic momentum continues to build around the world. U.S. growth has shown
little sign of slowing; the expansions in Europe have picked up speed; and the
recoveries in Asia have been surprisingly vigorous. We expect such global growth
trends to intensify and accelerate in a self-reinforcing manner over the balance
of 1999 and into 2000. This brighter world economic picture should continue to
fuel the sale of U.S. Treasuries by foreign investors. At the same time, we
believe that shifts by foreign investors to comparatively riskier asset classes
should provide a lift to the corporate, mortgage, and asset-backed spread
sectors.
We do not believe that this rebound in growth is likely to result in any serious
build up of inflationary pressures in Europe and Asia because of the ample
economic slack that still exists in those regions. In the U.S., by contrast,
while inflation remains low currently, recent hikes in the prices of oil and
gold, together with other indications of persistent economic strength, suggest
that inflation may increase at some point in the near future. Furthermore, labor
markets remain drum tight, so the risks of economic overheating are more
palpable unless growth cools down fairly soon. We continue to doubt that such a
slowing is in the cards for the near term given the U.S. economy's strong
fundamentals. This, along with the Federal Reserve Board's "tightening bias"
stance declared on October 5, leads us to expect some additional Fed tightening
and gradually building inflationary pressures to impart a cautious tone in U.S.
financial markets.
Given this outlook, we anticipate fixed income yields to drift a bit higher and
yield spreads to widen over the near term, as Y2K and liquidity concerns arise.
These conditions should present us with attractive, but limited, opportunities
to invest new cash flows at higher yield spreads. Over the longer term, we
maintain a generally positive but cautious outlook for the U.S. fixed income
markets.
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.
Our strategy is to continue to focus on selecting quality spread sector assets
at the maximum yield possible, while normally maintaining a 10% cash allocation
to provide liquidity. This liquidity facilitates effective wrapper agreement
management while maximizing the return volatility of the fixed income
securities. Additionally, we expect the GAA overlay strategy to boost returns,
as the world economic momentum continues to build and, we believe, fuel a rally
in the financial markets.
We value your support of the PreservationPlus Income Fund and look forward to
serving your investment needs in the years ahead.
/s/ Eric Kirsch /s/ John Axtell /s/ Louis R. D'Arienzo
Eric Kirsch, John Axtell and Louis R. D'Arienzo
Portfolio Managers of the
PreservationPlus Income Portfolio
September 30, 1999
4
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PreservationPlus Income Fund
Performance Comparison
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Comparison of Change in Value of a $10,000 Investment in the PreservationPlus
Income Fund since December 23, 1998.
Total Return for Periods through
September 30, 1999
Six Months/2 Since 12/23/98/1,2
3.05% 4.46%
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1/ The Fund's inception date.
2/ Cumulative return.
Investment return and principal value will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
[GRAPHIC OMITTED]
PreservationPlus Income Fund - $10,446
Dec-98 10,000
Mar-99 10,137
Sep-99 10,446
Lehman 1-3 Year Government/Corporate Index - $10,252
Dec-98 10,000
Mar-99 10,071
Sep-99 10,252
IBC First Tier Retail Money Market Universe - $10,330
Dec-98 10,000
Mar-99 10,107
Sep-99 10,330
Wrapped Lehman Intermediate Aggregate Index - $10,415
Dec-98 10,000
Mar-99 10,146
Sep-99 10,415
Past performance is not indicative of future performance. Performance figures
assume the reinvestment of dividends.
5
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PreservationPlus Income Fund
Statement of Assets and Liabilities September 30, 1999
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<TABLE>
<CAPTION>
<S> <C>
Assets
Investment in PreservationPlus Income Portfolio, at Value ......................... $ 143,752
Due from Bankers Trust ............................................................ 22,370
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Total Assets ........................................................................... 166,122
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Liabilities
Dividend Payable .................................................................. 795
Accrued Expenses and Other ........................................................ 47,738
---------
Total Liabilities ...................................................................... 48,533
---------
Net Assets ............................................................................. $ 117,589
=========
Composition of Net Assets
Paid-in Capital ................................................................... $ 117,589
Accumulated Net Realized Loss from Investments, Futures Contracts, Foreign Currency
and Forward Foreign Currency Transactions ........................................ (170)
Net Unrealized Appreciation on Investments, Futures Contracts, Foreign Currency
and Forward Foreign Currency Contracts ........................................... 353
Unrealized Depreciation on Wrapper Agreements ....................................... (183)
---------
Net Assets ............................................................................. $ 117,589
=========
Net Asset Value, Offering and Redemption Price Per Share
(net assets divided by shares outstanding) .......................................... $ 10.00
=========
Shares Outstanding ($0.001 par value per share, unlimited number of
shares of beneficial interest authorized) ........................................... 11,759
=========
</TABLE>
See Notes to Financial Statements.
6
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PreservationPlus Income Fund
Statement of Operations
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<TABLE>
<CAPTION>
For the Period
December 23, 1998/1
through
September 30, 1999
------------------
<S> <C>
Investment Income
Income net of expenses allocated from PreservationPlus Income Portfolio ................. $ 3,012
--------
Expenses
Printing and Shareholder Reports ........................................................ 29,379
Professional Fees ....................................................................... 12,696
Trustees Fees ........................................................................... 3,021
Administration and Services Fees ........................................................ 170
Miscellaneous ........................................................................... 2,639
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Total Expenses .......................................................................... 47,905
Less Fees Waived/Expenses Reimbursed by Bankers Trust ................................... (47,717)
--------
Net Expenses ............................................................................ 188
--------
Net Investment Income ...................................................................... 2,824
--------
Realized and Unrealized Gain on Investments, Foreign Currency Transactions,
Forward Foreign Currency Contracts, Future Contracts and Wrapper Agreements
Net Realized Loss from:
Investments, Foreign Currency and Forward Foreign Currency Transactions .............. (1)
Futures Contracts .................................................................... (169)
--------
Net Changes in Unrealized Appreciation/Depreciation on:
Investments, Foreign Currency, Forward Foreign Currency Contracts and Future Contracts 353
Wrapper Agreements ................................................................... (183)
--------
Net Realized and Unrealized Gain (Loss) on Investments, Futures, Foreign Currencies,
Forward Foreign Currency Contracts and Wrapper Agreements ............................... --
--------
Net Increase in Net Assets from Operations ................................................. $ 2,824
========
</TABLE>
___________
1/ Commencement of operations.
7
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PreservationPlus Income Fund
Statement of Changes in Net Assets
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<TABLE>
<CAPTION>
For the Period
December 23, 1998/1
through
September 30, 1999
------------------
<S> <C>
Increase in Net Assets:
Operations
Net Investment Income ............................................................... $ 2,824
Net Change in Unrealized Appreciation/Depreciation on Investments, Futures Contracts,
Foreign Currencies and Forward Foreign Currency Contracts ......................... 353
Net Change in Unrealized Appreciation/Depreciation on Wrapper Agreements ............ (183)
Net Realized Loss from Investments, Futures, Foreign Currency and
Forward Foreign Currency Transactions ............................................. (170)
---------
Net Increase in Net Assets Resulting from Operations ................................ 2,824
---------
Distributions to Shareholders
Net Investment Income ............................................................... (2,824)
Capital Transactions in Shares of Beneficial Interest
Proceeds from Sales of Shares ....................................................... 447,190
Dividend Reinvestments .............................................................. 1,781
Cost of Shares Sold ................................................................. (331,382)
---------
Net Increase in Net Assets from Capital Transactions in Shares of Beneficial Interest .. 117,589
---------
Total Increase in Net Assets ........................................................... 117,589
Net Assets
Beginning of Period .................................................................... --
---------
End of Period .......................................................................... $ 117,589
=========
</TABLE>
__________
1/ Commencement of operations.
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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.
<TABLE>
<CAPTION>
For the Period
December 23, 1998/1
through
September 30, 1999
------------------
<S> <C>
Per Share Operating Performance:
Net Asset Value, Beginning of Period ................................................. $ 10.00
-------
Income from Investment Operations
Net Investment Income ............................................................. 0.44
Distributions to Shareholders
Net Investment Income ............................................................. (0.44)
-------
Net Asset Value, End of Period ....................................................... $ 10.00
=======
Total Investment Return .............................................................. 4.46%/2
Supplemental Data and Ratios:
Net Assets, End of Period (000s omitted) .......................................... $ 118
Ratios to Average Net Assets:
Net Investment Income .......................................................... 5.85%/3
Net Expenses, Including Expenses of the PreservationPlus Income Portfolio ...... 0.89%/3
Decrease Reflected in Above Expense Ratio Due to Fees Waived/Expenses Reimbursed
by Bankers Trust ............................................................ 228.00%/3
</TABLE>
__________
1/ Commencement of operations.
2/ Return is not annualized.
3/ Annualized.
8
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PreservationPlus Income Fund
Notes to Financial Statements
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Note 1--Organization and Significant Accounting Policies
A. Organization
BT Investment 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 began operations
on December 23, 1998. The Fund seeks to achieve its investment objective by
investing substantially all of its assets in the BT PreservationPlus Income
Portfolio (the "Portfolio"). The Portfolio is an open-end management investment
company registered under the Act. The value of such investment in the Portfolio
reflects the Fund's proportionate interest in the net assets of the Portfolio.
At September 30, 1999, the Fund's investment was approximately 1% 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
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.
Security transactions are accounted for on a trade date basis. 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 Fund's pro rata interest in the realized and unrealized gains and
losses of the Portfolio including the offsetting valuation change of the Wrapper
Agreements.
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
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
each fund. Expenses directly attributable to a fund are charged to that fund,
while expenses which are attributable to all of the Trust's funds are allocated
among them on the basis of relative net assets.
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 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 .35% of
average daily net assets.
The Fund is also subject to shareholder servicing fees in the maximum amount of
.25% of average daily net assets.
Bankers Trust has voluntarily undertaken to waive its fees and reimburse
expenses of the Fund, to the extent necessary to limit all expenses to .65% of
the average daily net assets of the Fund, excluding expenses of the Portfolio
and 1.00% of the average daily net assets of the Fund, including expenses of the
Portfolio. Prior to July 1, 1999 Bankers Trust voluntarily undertook 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.
Shareholder transaction expenses are charges paid when investors buy, redeem or
exchange Shares. Under normal circumstances, redemptions of Shares that are
directed by Plan participants are not subject to a redemption fee. Redemptions
of Shares that are not directed by Plan participants and that are made on less
than twelve months' prior written notice to the Fund are subject to a redemption
fee payable to the Fund of 2% of the proceeds of the redemption.
ICC Distributors, Inc. provides distribution services to the Fund.
Bankers Trust was a wholly owned subsidiary of Bankers Trust Corporation ("BT
Corp."). On June 4, 1999, BT Corp. was acquired by Deutsche Bank AG ("Deutsche
Bank"). As a result of the transaction, Bankers Trust became an indirect
wholly-owned subsidiary of Deutsche Bank.
Note 3--Shares of Beneficial Interest
At September 30, 1999, there were an unlimited number of shares of beneficial
interest authorized. Transactions in shares of beneficial interest for the
period ended September 30, 1999 were as follows:
For the period December 23, 1998/1
to September 30, 1999
---------------------------------
Shares Amount
------- ----------
Sold 44,719 $447,190
Reinvested 178 1,781
Redeemed (33,138) (331,382)
------- ----------
Net Increase 11,759 $117,589
======= ==========
__________
1/ Commencement of operations.
9
<PAGE>
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PreservationPlus Income Fund
Report of Independent Auditors
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees
BT Investment Funds - PreservationPlus Income Fund
We have audited the accompanying statement of assets and liabilities of
PreservationPlus Income Fund (the "Fund") as of September 30, 1999, and the
related statement of operations, statement of changes in net assets, and
financial highlights for the period December 23, 1998 (commencement of
operations) through September 30, 1999. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements and
financial highlights. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
PreservationPlus Income Fund at September 30, 1999, and the results of its
operations, the changes in its net assets, and its financial highlights for the
period December 23, 1998 (commencement of operations) through September 30,
1999, in conformity with generally accepted accounting principles.
Ernst & Young, LLP
Philadelphia, Pennsylvania
November 8, 1999
10
<PAGE>
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PreservationPlus Income Portfolio
Schedule of Portfolio Investments September 30, 1999
- --------------------------------------------------------------------------------
Principal
Amount Security Value
------ -------- -----
ASSET-BACKED SECURITIES - 11.6%
$ 974,063 GE Capital Mortgage Services, Inc.,
6.00%, 6/1/29......................... $ 923,568
1,050,000 Norwest Asset Securities Corp.,
6.75%, 2/25/29........................ 1,023,529
971,401 Residential Funding Mortgage Securities,
6.75%, 4/25/29........................ 934,566
150,000 Vendee Mortgage Trust,
7.50%, 8/15/17........................ 151,431
----------
Total Asset-Backed Securities
(Cost $3,060,977)................................ 3,033,094
----------
CORPORATE DEBT - 26.3%
Financial Services - 7.3%
1,000,000 Household Finance Corp.,
6.50%, 11/15/08....................... 940,909
1,000,000 Paine Webber Group, Inc.,
6.37%, 5/15/04........................ 964,129
----------
1,905,038
----------
Industrial - 19.0%
1,000,000 Delphi Auto Systems Corp.,
6.50%, 5/1/09......................... 930,772
1,000,000 Laidlaw, Inc., 7.70%, 8/15/02........... 993,713
1,000,000 News America Holdings,
8.50%, 2/15/05........................ 1,050,091
1,000,000 Northrop-Grumman Corp.,
7.00%, 3/1/06......................... 965,965
1,000,000 Time Warner, Inc., 7.48%, 1/15/08....... 1,008,320
----------
4,948,861
----------
Total Corporate Debt
(Cost $6,894,833)................................ 6,853,899
----------
FOREIGN DEBT - 7.5%
1,000,000 Celulosa Arauco y Constitu,
6.75%, 12/15/03....................... 940,058
1,000,000 Corp Andina de Fomento,
7.75%, 3/1/04......................... 1,002,095
----------
Total Foreign Debt
(Cost $1,938,850)................................ 1,942,153
----------
Principal
Amount/
Shares Security Value
------ -------- -----
MORTGAGE BACKED SECURITIES - 35.7%
$5,083,224 FGLMC GOLD, 7.50%, 10/1/24..............$ 5,111,655
1,135,629 FHLMC GOLD, 8.00%, 3/1/27.............. 1,163,297
1,057,079 FNCL, 6.50%, 9/1/28.................... 1,014,021
1,080,115 FNCL, 6.50%, 10/1/28................... 1,036,119
1,043,684 FNCL, 6.50%, 12/1/28................... 1,001,172
----------
Total Mortgage-Backed Securities
(Cost $9,509,734)................................ 9,326,264
----------
U.S. TREASURY SECURITIES - 1.6%
440,000 U.S. Treasury Note, 5.25%, 5/15/04...... 429,963
----------
Total U.S. Treasury Securities
(Cost $429,570).................................. 429,963
----------
SHORT-TERM INSTRUMENTS - 14.5%
Mutual Funds - 13.4%
3,498,725 Institutional Cash Management
Fund.................................. 3,498,725
----------
U.S. Treasury Bills - 1.1%
275,000 U.S. Treasury Bill, 4.55%, 12/2/99...... 272,845
----------
Total Short-Term Instruments
(Cost $3,771,570)................................ 3,771,570
----------
Total Investments
(Cost $25,605,534).................... 97.2% 25,356,943
---- ----------
Wrapper Agreements* - 1.6%
Bank of America NT&SA................ 264,272
TransAmerica Life Insurance &
Annuity Co. ....................... 145,357
----------
Total Wrapper Agreements................ 409,629
----------
Other Assets in Excess of Liabilities... 1.2% 328,425
--- ----------
Net Assets.............................. 100.0% $26,094,997
===== ===========
__________
The following abbreviations are used in portfolio descriptions:
FHLMC - Federal Home Loan Mortgage Corp.
FNCL - Federal National Mortgage Association Class Loan
*Wrapper Agreements - Each Wrapper Agreement obligates the wrapper provider to
maintain the book value of a portion of the Portfolio's assets up to a specified
maximum dollar amount, upon the occurrence of certain specified events.
See Notes to Financial Statements.
11
<PAGE>
- --------------------------------------------------------------------------------
PreservationPlus Income Portfolio
Statement of Assets and Liabilities September 30, 1999
- --------------------------------------------------------------------------------
Assets
Investment at Value (Cost $25,605,534) .................. $25,356,943
Interest Receivable ..................................... 266,680
Prepaid Expenses and Other .............................. 72,843
Wrapper Agreements ...................................... 409,629
Due from Bankers Trust .................................. 17,882
Variation Margin Receivable ............................. 30,456
-----------
Total Assets ............................................... 26,154,433
-----------
Liabilities
Accrued Expenses and Other .............................. 59,436
-----------
Total Liabilities .......................................... 59,436
-----------
Net Assets ................................................. $26,094,997
===========
See Notes to Financial Statements.
12
<PAGE>
- --------------------------------------------------------------------------------
PreservationPlus Income Portfolio
Statement of Operations
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period
December 23, 1998/1
through
September 30, 1999
-------------------
<S> <C>
Investment Income
Interest Income ............................................................................. $ 595,970
Credited Rate Interest ...................................................................... 47,245
---------
Total Investment Income ........................................................................ 643,215
---------
Expenses
Advisory Fees ............................................................................... 64,673
Professional Fees ........................................................................... 21,863
Wrapper Fees ................................................................................ 18,692
Printing and Shareholder Reports ............................................................ 7,000
Administration and Service Fees ............................................................. 4,620
Trustees Fees ............................................................................... 4.013
Miscellaneous ............................................................................... 10,284
---------
Total Expenses .............................................................................. 131,145
Less Fees Waived/Expenses Reimbursed by Bankers Trust ....................................... (85,905)
---------
Net Expenses ............................................................................. 45,240
---------
Net Investment Income .......................................................................... 597,975
---------
Realized and Unrealized Gain on Investments, Foreign Currency Transactions,
Forward Foreign Currency Contracts, Futures Contracts and Wrapper Agreements
Net Realized Gain (Loss) from:
Investment, Foreign Currency and Forward Foreign Currency Transactions ................... 3,867
Futures Contracts ........................................................................ (36,687)
Net Changes in Unrealized Appreciation/Depreciation on:
Investments, Foreign Currency, Forward Foreign Currency Contracts and Future Contracts ... (329,564)
Wrapper Agreements ....................................................................... 362,384
---------
Net Realized and Unrealized Gain (Loss) on Investments, Futures, Foreign Currencies,
Forward Foreign Currency Contracts and Wrapper Agreements ..................................... --
---------
Net Increase in Net Assets from Operations ..................................................... $ 597,975
=========
</TABLE>
___________
1/ Commencement of operations.
See Notes to Financial Statements.
13
<PAGE>
- --------------------------------------------------------------------------------
PreservationPlus Income Portfolio
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period
December 23, 1998/1
through
September 30, 1999
---------------------
<S> <C>
Increase (Decrease) in Net Assets from:
Operations
Net Investment Income .................................................................. $ 597,975
Net Change in Unrealized Appreciation/Depreciation on Investments, Futures Contracts,
Foreign Currency and Forward Foreign Currency Contracts .............................. (329,564)
Net Unrealized Appreciation/Depreciation on Wrapper Agreements ......................... 362,384
Net Realized Loss from Investments, Futures, Foreign Currency and
Forward Foreign Currency Transactions ................................................ (32,820)
------------
Net Increase in Net Assets from Operations ................................................ 597,975
------------
Capital Transactions
Proceeds from Capital Invested ......................................................... 44,761,026
Value of Capital Withdrawn ............................................................. (19,264,004)
------------
Net Increase in Net Assets from Capital Transactions ...................................... 25,497,022
------------
Total Increase in Net Assets .............................................................. 26,094,997
Net Assets
Beginning of Period ....................................................................... --
------------
End of Period ............................................................................. $ 26,094,997
============
</TABLE>
__________
1/ Commencement of operations.
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
Contained below are selected ratios to average net assets and other supplemental
data for the period indicated for the PreservationPlus Income Portfolio.
For the Period
December 23, 1998/1
through
September 30, 1999
--------------------
Supplemental Data and Ratios:
Net Assets, End of Period (000s omitted) ............... $ 26,095
Ratios to Average Net Assets:
Net Investment Income ............................... 6.47%/2
Expenses ............................................ 0.49%/2
Decrease Reflected in the Above Expense Ratio Due
to Fees Waived/Expenses Reimbursed by Bankers
Trust ............................................. 0.92%/2
Portfolio Turnover Rate ................................ 149%
__________
1/ Commencement of operations.
2/ Annualized.
See Notes to Financial Statements.
14
<PAGE>
- --------------------------------------------------------------------------------
PreservationPlus Income Portfolio
Notes to Financial Statements
- --------------------------------------------------------------------------------
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 began 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 a 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. TBA Purchase Commitments
The Portfolio may enter into "TBA" (to be announced) purchase commitments to
purchase securities for a fixed price at a future date, typically not exceeding
45 days. TBA purchase commitments may be considered securities in themselves,
and involve a risk of loss if the value of the security to be purchased declines
prior to settlement date, which risk is in addition to the risk of decline in
the value of a Portfolio's other assets. Unsettled TBA purchase commitments are
valued at the current market value of the underlying securities, according to
the procedures described under "Security Valuation" above.
E. Foreign Currency Transactions
The books and records of the Portfolio are maintained in U.S. dollars. All
assets and liabilities initially expressed in foreign currencies are converted
into U.S. dollars at prevailing exchange rates. Purchases and sales of
investment securities, dividend and interest income, and certain expenses are
translated at the rates of exchange prevailing on the respective dates of such
transactions.
F. Forward Foreign Currency Contracts
The Portfolio may enter into forward foreign currency contracts in an attempt to
enhance the return on the Portfolio's assets pursuant to its Global Asset
Allocation strategy. The net U.S. dollar value of foreign currency underlying
all contractual commitments held by the Portfolio and the resulting unrealized
appreciation or depreciation are determined using prevailing exchange rates.
With respect to forward foreign currency contracts, losses in excess of amounts
recognized in the Statement of Operations may arise due to changes in the value
of the foreign currency or if the counterparty does not perform under the
contract.
G. Option Contracts
The Portfolio may enter into option contracts. Upon the purchase of a put option
or a call option by the Portfolio, the premium paid is recorded as an
investment, and marked-to-market daily to reflect the current market value. When
a purchased option expires, the Portfolio will realize a loss in the amount of
the cost of the option. When the Portfolio enters into a closing sale
transaction, the Portfolio will realize a gain or loss depending on whether the
sale proceeds from the closing sale transaction are greater or less than the
cost of the option. When the Portfolio exercises a put option, it realizes a
gain or loss from the sale of the underlying security and the proceeds from such
sale will be decreased by the premium originally paid. When the
15
<PAGE>
- --------------------------------------------------------------------------------
PreservationPlus Income Portfolio
Notes to Financial Statements
- --------------------------------------------------------------------------------
Portfolio exercises a call option, the cost of the security which the Portfolio
purchases upon exercise will be increased by the premium originally paid.
H. Futures Contracts
The Portfolio may enter into financial futures contracts which are contracts to
buy a standard quantity of securities at a specified price on a future date. The
Portfolio is required to make initial margin deposits either in cash or
securities in an amount equal to a certain percentage of the contract amount.
Variation margin payments are made or received by the Portfolio each day,
dependent on the daily fluctuations in the value of the underlying security, and
are recorded for financial statement purposes as unrealized gains or losses by
the Portfolio.
Futures contracts do involve certain risks. These risks could include a lack of
correlation between the futures contract and the corresponding securities
market, a potential lack of liquidity in the secondary market and incorrect
assessments of market trends which may result in poorer overall performance than
if a futures contract had not been entered into.
Futures contracts are valued at the settlement price established each day by the
board of trade or exchange on which they are traded.
I. Federal Income Taxes
The Portfolio is considered a partnership under the Internal Revenue Code.
Therefore, no federal income tax provision is necessary.
J. 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 agreement, Bankers Trust
provides administrative, custody, transfer agency and shareholder services to
the Portfolio in return for a fee computed daily and paid monthly at an annual
rate of .05% of the Portfolio's average daily net assets.
The Portfolio has entered into an Advisory Agreement with Bankers Trust. Under
this agreement, the Portfolio pays Bankers Trust an advisory fee computed daily
and paid monthly at an annual rate of .70% of the Portfolio's average daily net
assets, less advisor fees paid for the pro rata amount due to investment in the
Institutional Cash Management Fund.
Bankers Trust has voluntarily undertaken to waive its fees and reimburse
expenses of the Portfolio, to the extent necessary, to limit all expenses to
.35% of the average daily net assets of the Portfolio. Prior to July 1, 1999
Bankers Trust voluntarily undertook to waive its fees and reimburse expenses of
the Portfolio, to the extent necessary, to limit all expenses to .80% of the
average daily net assets of the Portfolio.
The Portfolio may invest in the 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 for the period ended September 30, 1999 amounted to $62,885.
At September 30, 1999, the Portfolio was a participant with other affiliated
entities in a revolving credit facility in the amount of $100,000,000, which
expires April 29, 2000. A commitment fee of .10% per annum on the average daily
amount of the available commitment is payable on a quarterly basis and
apportioned equally among all participants. On October 8, 1999, the revolving
credit facility was increased to $150,000,000. No amounts were outstanding under
the credit facility for the year ended September 30, 1999.
Bankers Trust was a wholly owned subsidiary of Bankers Trust Corporation ("BT
Corp."). On June 4, 1999, BT Corp. was acquired by Deutsche Bank AG ("Deutsche
Bank"). As a result of the transaction, Bankers Trust became an indirect
wholly-owned subsidiary of Deutsche Bank.
Note 3--Purchases and Sales of Investment Securities
The aggregate cost of purchases and proceeds from sales of investments, other
than short-term obligations, for the period ended September 30, 1999, were
$36,034,878 and $13,381,816, respectively. For federal income tax purposes, the
tax basis of investments held at September 30, 1999, was $25,605,534. The
aggregate gross unrealized appreciation was $3,695, and the aggregate gross
unrealized depreciation for all investments was $252,286 as of September 30,
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 are
considered illiquid.
16
<PAGE>
- --------------------------------------------------------------------------------
PreservationPlus Income Portfolio
Notes to Financial Statements
- --------------------------------------------------------------------------------
A default by the issuer of a Portfolio Security or a Wrapper Provider on its
obligations may result in a decrease in the value of the Portfolio assets. 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--Futures Contracts
A summary of obligations under these financial instruments at September 30, 1999
is as follows:
<TABLE>
<CAPTION>
Unrealized
Appreciation
Types of Futures Expiration Contracts Position Market Value (Depreciation)
- ---------------------------------- ------------------ --------- -------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Japanese Topix Index Futures December 10, 1999 2 Long $ 281,259 $ 976
British FTSE100 Index Futures December 18, 1999 3 Long 300,375 (5,469)
DAX Index Futures December 17, 1999 3 Long 411,874 (25,367)
Toronto 35 Index Futures December 23, 1999 1 Long 137,060 (3,452)
Australian SPI Index Futures December 31, 1999 1 Long 47,022 (524)
CAC 40 Euro Index Futures December 31, 1999 (4) Short (196,106) 446
Long Gilt Bond Futures December 22, 1999 (1) Short (175,186) 6,286
Canadian Government Bond Futures December 31, 1999 (9) Short (753,238) (3,182)
Euro Bond Futures December 9, 1999 (1) Short (112,719) 487
Japanese Bond Futures March 10, 2000 (1) Short (1,239,643) (19,587)
Australian Bond Futures December 16, 1999 (5) Short (706,093) (2,260)
U.S. Treasury Note Futures December 22, 1999 (6) Short (660,750) (2,707)
- ------------------------------- -------- ------------- ---------------
Total (17) $ (2,666,145) $ (54,353)
=============================== ======== ============= ===============
</TABLE>
Note 6--Forward Foreign Currency Contracts
As of September 30, 1999, the PreservationPlus Income Portfolio had the
following open forward foreign currency contracts:
<TABLE>
<CAPTION>
Net Unrealized
Appreciation
Contracts In Exchange For Settlement Date Value (US$) (Depreciation) (US$)
- ----------------------------------------------------------------------------------------------------------------------
Sales
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Australian Dollar 606,000 US Dollar 389,815 10/7/99 $395,639 $ (5,824)
Canadian Dollar 829,000 US Dollar 556,219 10/6/99 564,906 (8,687)
Japanese Yen 59,746,000 US Dollar 550,274 10/7/99 561,681 (11,407)
- ----------------------------------------------------------------------------------------------------------------------
Total Sales (25,918)
- ----------------------------------------------------------------------------------------------------------------------
Purchases
- ----------------------------------------------------------------------------------------------------------------------
Euro Dollar 130,000 US Dollar 139,136 10/7/99 $139,035 (101)
British Pound 92,000 US Dollar 147,942 10/7/99 151,432 3,490
- ----------------------------------------------------------------------------------------------------------------------
Total Purchases 3,389
- ----------------------------------------------------------------------------------------------------------------------
Net Unrealized Depreciation $(22,529)
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
- --------------------------------------------------------------------------------
PreservationPlus Income Portfolio
Report of Independent Auditors
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees
BT PreservationPlus Income Portfolio
We have audited the accompanying statement of assets and liabilities including
the schedule of portfolio investments, of PreservationPlus Income Portfolio (the
"Portfolio") as of September 30, 1999 and the related statement of operations,
statement of changes in net assets, and financial highlights for the period
December 23, 1998 (commencement of operations) through September 30, 1999. These
financial statements and financial highlights are the responsibility of the
Portfolio's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements and
financial highlights. Our procedures included confirmation of securities owned
as of September 30, 1999, by correspondence with the Portfolio's custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
PreservationPlus Income Portfolio at September 30, 1999, and the results of its
operations, the changes in its net assets, and its financial highlights for the
period December 23, 1998 (commencement of operations) through September 30,
1999, in conformity with generally accepted accounting principles.
Ernst & Young, LLP
Philadelphia, Pennsylvania
November 8, 1999
18
<PAGE>
- --------------------------------------------------------------------------------
PreservationPlus Income Fund
Proxy Results (unaudited)
- --------------------------------------------------------------------------------
The BT PreservationPlus Income Fund shareholders voted on the following
proposals at the annual meeting of shareholders on October 8, 1999 or as
adjourned. The description of each proposal and number of shares voted are as
follows:
1. To elect the Bankers Trust Funds Board of Trustees.
Shares Shares Voted
Voted Withheld
For Authority
-------- ------------
Messr Biggar 3,342 --
Messr Dill 3,342 --
Messr Hale 3,342 --
Messr Langton 3,342 --
Messr Saunders 3,342 --
Messr Van Benschoten 3,342 --
Dr. Gruber 3,342 --
Dr. Herring 3,342 --
2. To approve the New Investment Advisory Agreement with Bankers Trust Company.
For Against Abstain
-------- ------- --------
3,342 0 0
3. To approve the New Investment Advisory Agreement with Morgan Grenfell, Inc.
For Against Abstain
-------- ------- --------
3,342 0 0
4. To approve the New Investment Sub-advisory Agreement with Bankers Trust
Company.
For Against Abstain
-------- ------- --------
3,342 0 0
5. To ratify the selection of Ernst & Young LLP as the independent accountants
of the Fund and its corresponding Portfolio.
For Against Abstain
-------- ------- --------
3,342 0 0
19
<PAGE>
[LOGO] Bankers Trust
Architects of Value
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
PreservationPlus Income Fund CUSIP #055922660
BT Investment Funds 815ANN (9/99)
Distributed by:
ICC Distributors, Inc.
Two Portland Square
Portland, ME 04101
