Deutsche Asset Management
Mutual Fund
Annual Report
September 30, 2000
[graphic omitted]
PreservationPlus Income
Formerly BT PreservationPlus Income Fund
A Member of the
Deutsche Bank Group [logo omitted]
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PreservationPlus Income
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TABLE OF CONTENTS
LETTER TO SHAREHOLDERS 3
PRESERVATIONPLUS INCOME
Statement of Assets and Liabilities 7
Statement of Operations 8
Statements of Changes in Net Assets 9
Financial Highlights 10
Notes to Financial Statements 11
Report of Independent Auditors 13
Tax Information 13
PRESERVATIONPLUS INCOME PORTFOLIO
Schedule of Portfolio Investments 14
Statement of Assets and Liabilities 18
Statement of Operations 19
Statements of Changes in Net Assets 20
Financial Highlights 21
Notes to Financial Statements 22
Report of Independent Auditors 26
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The Fund is not insured by the FDIC and is not a
deposit, obligation of or guaranteed by Deutsche
Bank. The Fund is subject to investment risks,
including possible loss of principal amount
invested.
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PreservationPlus Income
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LETTER TO SHAREHOLDERS
We are pleased to present you with this annual report for PreservationPlus
Income (the "Fund"), providing a detailed review of the market, the Portfolio,
and our outlook. Included is a complete financial summary of the Fund's
operations and a listing of the Portfolio's holdings.
PreservationPlus Income was the first SEC registered mutual fund specifically
designed as an investment alternative for individuals with IRAs previously
invested in bond funds, money market funds, savings accounts and CDs1, 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. PreservationPlus Income seeks to deliver returns above those of money
market funds while maintaining a stable value per share. 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 US FIXED INCOME MARKETS PERFORMED STRONGLY DURING THE FISCAL YEAR.
o For the twelve months ended September 30, 2000, commercial mortgage-backed
securities and mortgage-backed securities performed the best of the US bond
market sectors, with nominal annual returns of 7.80% and 7.42%, respectively.
o An inverted yield curve combined with the uncertainty surrounding the length
and extent of the Federal Reserve Board tightening campaign led US Treasuries
to a close second with a nominal annual return of 7.29%. For the fiscal year,
two-year US Treasury yields
<TABLE>
<CAPTION>
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CUMULATIVE AVERAGE ANNUAL
TOTAL RETURNS TOTAL RETURNS
Periods ended Past 1 Since Past 1 Since
September 30, 2000 year inception year inception
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<S> <C> <C> <C> <C>
PreservationPlus Income2
(inception 12/23/98) 6.65% 11.38% 6.65% 6.27%
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Lehman 1-3 Year Government/
Corporate Index3 5.99% 8.66%4 5.99% 4.86%4
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Wrapped Lehman Intermediate Aggregate
Income Index3 5.96% 10.32%4 5.96% 5.77%4
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iMoneyNet First Tier Retail Money
Funds Average3 5.55% 9.05%4 5.55% 5.07%4
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<FN>
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1 Unlike CDs and bank savings accounts, shares of the Fund are not deposits or
obligations of, or guaranteed by any bank and the shares are not federally
insured or guaranteed by the US government, the Federal Deposit Insurance
Corporation, the Federal Reserve Board or any other agency. In addition,
unlike the Fund, CDs and bank savings accounts generally offer a fixed rate
of return.
2 PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. Investment return and
principal value will fluctuate so that an investor's shares, when redeemed,
may be worth more or less than their original cost. These figures assume the
reinvestment of dividend and capital gain distributions and exclude the
impact of the 3% maximum redemption fee, which may apply in certain limited
circumstances. Any redemption fees that have been retained by the Fund are
reflected. As of October 1, 2000, the Fund reduced its redemption fee from
3% to 2%. Performance would have been lower during the specified periods had
certain fees and expenses not been waived by the Fund.
The Fund seeks to maintain a constant $10.00 per share net asset value. The
Fund is not a money market fund, and there can be no assurance that it will
be able to maintain a stable share value. The Fund holds fixed income
securities, money market instruments, futures, options and other
instruments, and enters into Wrapper Agreements with financial institutions,
such as insurance companies and banks. These agreements are intended to
stabilize the value per share. The Fund's investment in derivatives may be
more volatile and less liquid than traditional securities and the Fund could
suffer losses on its derivative positions.
3 The Lehman 1-3 year Government/Corporate Index, our primary benchmark, is an
unmanaged total return index consisting of US Government agency securities,
US Government Treasury securities and all investment grade corporate debt
securities with maturities of one to three years. The Wrapped Lehman
Intermediate Aggregate Index is a custom benchmark representing investment
in a portfolio consisting of the Lehman Intermediate Aggregate Index and a
book value wrapper agreement with an assumed expense level of 0.15%. Money
Fund Report Averages, a service of iMoneyNet, Inc., are averages of
categories of similar money market funds. Benchmark returns do not reflect
expenses, which have been deducted from the Fund's return.
4 Benchmark returns are for the period beginning December 31, 1998.
</FN>
</TABLE>
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LETTER TO SHAREHOLDERS
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PORTFOLIO DIVERSIFICATION
By Sector as of September 30, 2000
(percentages are based on market value in the Portfolio)
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Financial Services 18.06%
Mortgage Backed Securities 16.20%
Collateralized Mortgage Obligations 14.50%
Money Market Fund 13.60%
Other Corporate 11.30%
Asset Backed 9.24%
Industrial 6.42%
Utilities 4.96%
US Government & Agency Obligations 2.47%
Foreign Debt 2.21%
US Treasury Bills 0.83%
US Treasury Notes 0.21%
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declined 0.37% to 5.97%, five-year Treasury yields dropped 0.09% to 5.84%,
ten-year Treasury yields fell 0.08% to 5.80%, and the thirty-year Treasury
yield declined 0.17% to 5.88%. On a calendar basis, Treasuries are shaping up
potentially to have their best yearly return since 1995.
o In response to an aggressive Federal Reserve Board, a diminishing supply of
longer-dated US Treasuries, and the US Treasury's debt buyback program, the
Treasury yield curve became significantly inverted for the first time since
1990. By early March, thirty-year, ten-year, and five-year yields were all
lower than two-year Treasury yields.
o These same factors caused the corporate and asset-backed "spread sectors" to
comparatively underperform US Treasuries for the fiscal year. Still, the
nominal annual return for corporate bonds was 5.87%, and the nominal annual
return for asset-backed securities was 6.92%. Higher quality corporate
credits significantly outperformed lower quality credits, as investors sought
the greater degree of safety associated with higher quality.
SUCH STRONG PERFORMANCE BY THE US FIXED INCOME MARKETS FOR THE FISCAL YEAR WAS
ESPECIALLY REMARK-ABLE IN LIGHT OF THE MANY CHALLENGES PRESENTED DURING THE
PERIOD.
o In an attempt to quell rising inflation and unsustainably strong economic
growth, the Federal Reserve Board raised interest rates by 1.25% through four
hikes during the fiscal year. Continuing their gradual approach from the
summer of 1999, the Federal Reserve Board raised the targeted federal funds
rate by 0.25% at each of their November 1999 and February and March 2000
meetings. As a more aggressive effort to slow the economy, the Federal
Reserve Board then raised interest rates by 0.50% in May. Since then, the
Federal Reserve Board has chosen not to raise interest rates, primarily based
on signs that the economy may be slowing. On September 30, 2000, the targeted
federal funds rate stood at 6.50%.
o The US Treasury announced its decision in mid-March to reduce the number of
auctions held and to institute a buyback program, whereby the US Treasury
would buy back its own thirty-year issues with budget surplus monies.
Year-to-date, the Treasury has purchased $22.25 billion of outstanding debt,
on schedule to meet their previously announced $30 billion for the year 2000.
o Dominant market technicals shifted during the third calendar quarter, as the
Federal Reserve Board appeared to have engineered a comfortable "soft
landing" for the US economy. This background created a suitable environment
for investors to reenter the credit markets. As a result, the yield curve
steepened 0.38% during the quarter, dramatically reversing the significant
inversion of the prior six months. The yield curve inverted by as much as
0.76% earlier in the year, but ended the period inverted by only 0.08%. In
addition, with the exception of BBB corporates, all major credit-dependent
"spread sectors" -- i.e. corporate, mortgage and asset-backed -- outperformed
comparable duration Treasuries in the third quarter.
INVESTMENT REVIEW
THE FUND WAS INVESTED ACROSS MAJOR SECTORS OF THE INVESTMENT GRADE FIXED INCOME
MARKET. As of September 30, 2000, the portfolio was allocated 40.7% to corporate
bonds, 30.7% to mortgage-backed securities, 9.3% to asset-backed securities,
3.5% to US Treasuries/agencies, 2.2% to foreign debt, and 13.6% to cash
equivalents.
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LETTER TO SHAREHOLDERS
This allocation of fixed income securities was intentionally weighted towards
the corporate and mortgage sectors, as these sectors have historically offered
higher yields than US government securities. The Fund 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 WAS 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
three Wrapper Agreements, each of which covers approximately one third of the
fixed income securities and GAA strategy in the Portfolio. 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,
2000 are issued by Bank of America NT&SA, Transamerica Life Insurance & Annuity
Co. and Caisse des Depots et Consignations. 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 was AA on September 30, 2000, measured using Standard &
Poor's ratings. The average quality of the issuers of the Wrapper Agreements
improved from AA to AA+ over the twelve month period, measured using Standard &
Poor's ratings. The Fund's duration at September 30, 2000 stood at 3.42 years.
MANAGER OUTLOOK
With the US economy showing signs of coming into better balance, i.e. with
demand moderating and productivity rising, the outlook for the US financial
markets has improved. Indeed, we feel more confident now that the economy may be
able to achieve a relatively smooth adjustment to a more sustainable growth path
by 2001. Still, recent developments could easily prove ephemeral, and we
continue to expect that some additional firming of financial market conditions
will yet be needed to correct the economy's lingering imbalances. While the
likelihood of a really severe landing has receded, it has by no means been
eliminated. And even the most graceful of "soft landings" would likely entail a
less favorable growth/inflation/profits mix than the virtual nirvana that has
underpinned the US equity markets in recent years.
Thus, we remain cautious about the outlook for the US fixed income markets,
although less so than at almost any time in the last year or so when there was
little evidence that the adjustment process needed by the US economy was
underway. We agree with the consensus outlook that the Federal Reserve Board is
nearing the end of its tightening bias. Further, the supply/demand picture for
US bonds is constructive.
We 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 the highest quality spread
sector assets at the maximum yield possible, while normally maintaining a 10%
cash allocation to provide liquidity. This liquidity facilitates the management
of daily investor cash flows. Additionally, we expect the GAA overlay to boost
potential returns, as long as world economic momentum continues to build.
We value your support of PreservationPlus Income and look forward to serving
your investment needs in the years ahead.
/S/SIGNATURES/ERIC KIRSCH, JOHN AXTELL AND LOUIS R. D'ARIENZO
Eric Kirsch, John Axtell and Louis R. D'Arienzo
Portfolio Managers of the
PRESERVATIONPLUS INCOME PORTFOLIO
September 30, 2000
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PERFORMANCE COMPARISON
PRESERVATIONPLUS INCOME
GROWTH OF A $10,000 INVESTMENT (SINCE DECEMBER 23, 19981)
[line graph omitted]
plot points as follows:
PreservationPlus Lehman 1-3 Year IMoneyNet First Wrapped Lehman
Income Fund Government/Corporate Tier Retail Money Intermediate
Index MarketUniverse Aggregate Index
12/98 10011 10000 10000 10000
3/99 10137 10072 10107 10132
6/99 10282 10128 10215 10269
9/99 10446 10252 10331 10411
12/99 10611 10316 10458 10558
3/00 10780 10446 10594 10708
6/00 10958 10619 10742 10868
9/00 11138 10864 10903 11032
Average Annual Total Return for the Periods Ended September 30, 2000
(excluding 3% maximum redemption fee)
One Year 6.65% Since 12/23/981 6.27%
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Benchmark returns are for the period beginning December 31, 1998.
1 The Fund's inception date.
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. Investment return and
principal value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than their original cost. These figures assume the
reinvestment of dividend and capital gain distributions and exclude the impact
of the 3% maximum redemption fee, which may apply in certain limited
circumstances. Any redemption fees that have been retained by the Fund are
reflected. As of October 1, 2000, the Fund reduced its redemption fee from 3% to
2%. Performance would have been lower during the specified periods had certain
fees and expenses not been waived by the Fund.
The Lehman 1-3 year Government/Corporate Index, our primary benchmark, is an
unmanaged total return index consisting of US Government agency securities, US
Government Treasury securities and investment grade corporate debt securities
with maturities of one to three years. The Wrapped Lehman Intermediate Aggregate
Index is a custom benchmark representing investment in a portfolio consisting of
the Lehman Intermediate Aggregate Index and a book value wrapper agreement with
an assumed expense level of 0.15%. Money Fund Report Averages, a service of
iMoneyNet, Inc., are averages of categories of similar money market funds.
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STATEMENT OF ASSETS AND LIABILITIES
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SEPTEMBER 30, 2000
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ASSETS
Investment in PreservationPlus Income Portfolio, at Value $278,075
Receivable for Shares of Beneficial Interest Subscribed 1,193
Due from Bankers Trust 5,044
--------
Total Assets 284,312
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LIABILITIES
Dividend Payable 1,280
Accrued Expenses and Other 63,556
--------
Total Liabilities 64,836
--------
NET ASSETS $219,476
========
COMPOSITION OF NET ASSETS
Paid-in Capital $221,864
Accumulated Net Realized Loss from Investment, Futures,
Foreign Currency and Forward Foreign Currency Transactions (3,240)
Net Unrealized Appreciation on Investments, Futures, Foreign
Currency and Forward Foreign Currency Transactions 4,020
Unrealized Depreciation on Wrapper Agreements (3,168)
--------
NET ASSETS $219,476
========
SHARES OUTSTANDING ($0.001 par value per share, unlimited number of
shares of beneficial interest authorized) 21,948
========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
(net assets divided by shares outstanding) $ 10.00
========
See Notes to Financial Statements.
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STATEMENT OF OPERATIONS
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<TABLE>
<CAPTION>
FOR THE YEAR ENDED
SEPTEMBER 30, 2000
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<S> <C>
INVESTMENT INCOME
Income Allocated from PreservationPlus Income Portfolio, Net $ 13,574
--------
EXPENSES
Printing and Shareholder Reports 38,581
Professional Fees 16,536
Trustees Fees 3,934
Administration and Services Fees 662
Miscellaneous 3,572
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Total Expenses 63,285
Less: Fee Waivers or Expense Reimbursements (62,061)
--------
Net Expenses 1,224
--------
NET INVESTMENT INCOME 12,350
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REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FOREIGN CURRENCIES, FORWARD
FOREIGN CURRENCY TRANSACTIONS, FUTURES AND WRAPPER AGREEMENTS
Net Realized Gain (Loss) from:
Investment Transactions (1,383)
Foreign Currency Transactions 166
Forward Foreign Currency Transactions (201)
Futures Transactions 736
Net Change in Unrealized Appreciation/Depreciation on Investments,
Foreign Currency, Forward Foreign Currency and Futures Transactions 3,667
Net Change in Unrealized Appreciation/Depreciation on Wrapper Agreements (2,985)
--------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FOREIGN CURRENCIES,
FORWARD FOREIGN CURRENCY TRANSACTIONS, FUTURES AND
WRAPPER AGREEMENTS --
--------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 12,350
========
</TABLE>
See Notes to Financial Statements.
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STATEMENTS OF CHANGES IN NET ASSETS
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<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE DECEMBER 23, 19981
YEAR ENDED THROUGH
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
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<S> <C> <C>
INCREASE IN NET ASSETS:
OPERATIONS
Net Investment Income $ 12,350 $ 2,824
Net Realized (Loss) from Investment, Foreign
Currency, Forward Foreign Currency and
Futures Transactions (682) (170)
Net Change in Unrealized Appreciation/Depreciation on
Investments, Foreign Currencies, Forward Foreign
Currencies and Futures 3,667 353
Net Change in Unrealized Depreciation on Wrapper
Agreements (2,985) (183)
--------- ---------
Net Increase in Net Assets Resulting from Operations 12,350 2,824
--------- ---------
DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income (12,350) (2,824)
--------- ---------
CAPITAL TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Sales of Shares 202,238 447,190
Dividend Reinvestments 11,523 1,781
Cost of Shares Sold (111,874) (331,382)
--------- ---------
Net Increase in Net Assets from Capital Transactions in
Shares of Beneficial Interest 101,887 117,589
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TOTAL INCREASE IN NET ASSETS 101,887 117,589
NET ASSETS
Beginning of Period 117,589 --
--------- ---------
End of Period $ 219,476 $ 117,589
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<FN>
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1 Commencement of operations.
</FN>
</TABLE>
See Notes to Financial Statements.
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FINANCIAL HIGHLIGHTS
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<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE DECEMBER 23, 19981
YEAR ENDED THROUGH
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
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<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
NET ASSET VALUE, BEGINNING OF PERIOD $10.00 $10.00
------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.65 0.44
DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income (0.65) (0.44)
------ ------
NET ASSET VALUE, END OF PERIOD $10.00 $10.00
====== ======
TOTAL INVESTMENT RETURN 6.65% 4.46%2
SUPPLEMENTAL DATA AND RATIOS:
Net Assets, End of Period (000s omitted) $ 219 $ 118
Ratios to Average Net Assets:
Net Investment Income 6.52% 5.85%3
Expenses After Waivers, Including Expenses of the
PreservationPlus Income Portfolio 1.00% 0.89%3
Expenses Before Waivers, Including Expenses of the
PreservationPlus Income Portfolio 34.37% 228.00%3
<FN>
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1 Commencement of operations.
2 Return is not annualized.
3 Annualized.
</FN>
</TABLE>
See Notes to Financial Statements.
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NOTES TO FINANCIAL STATEMENTS
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. PreservationPlus Income (the "Fund") is one
of the funds offered to investors by the Trust. The Fund began operations and
offering shares of beneficial interest on December 23, 1998.
The Fund seeks to achieve its investment objective by investing substantially
all of its assets in the PreservationPlus Income Portfolio (the "Portfolio").
The Portfolio is a series of BT Investment Portfolios and is an open-end
management investment company registered under the Act. The value of the Fund's
investment in the Portfolio reflects the Fund's proportionate interest in the
net assets of the Portfolio. At September 30, 2000, the Fund's investment was
approximately 0.14% 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. VALUATION OF SECURITIES
Valuation of securities by the Portfolio is discussed in Note 1 of the
Portfolio's Notes to Financial Statements, which are included elsewhere in this
report.
C. SECURITIES TRANSACTIONS AND INVESTMENT INCOME
The Fund earns income, net of expenses, daily 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.
Securities 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.
D. 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, earned by the Fund
are made at least annually to the extent they exceed capital loss
carry-forwards.
E. FEDERAL INCOME TAXES
It is the Fund's policy to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and distribute substantially
all of its taxable income to shareholders. Therefore, no federal income tax
provision is required.
The Fund may periodically make reclassifications among certain of its capital
accounts as a result of the differences in the characterization and allocation
of certain income and capital gains distributions determined annually in
accordance with federal tax regulations which may differ from accounting
principles generally accepted in the United States.
F. OTHER
The Trust accounts separately for the assets, liabilities, and operations of
each of its funds. Expenses directly attributable to a fund are charged to that
fund, while expenses which are attributable to the Trust are allocated among the
funds in the Trust on the basis of relative net assets.
G. ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States 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"), an indirect wholly owned subsidiary of Deutsche
Bank AG. Under this agreement, Bankers Trust provides administrative, custody,
and shareholder
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NOTES TO FINANCIAL STATEMENTS
services to the Fund. The Trust has entered into an agreement with Investment
Company Capital Corp., an indirectly wholly owned subsidiary of Deutsche Bank
AG, to provide transfer agency services to the Trust. All of these services are
provided in return for a fee computed daily and paid monthly at an annual rate
of .35% of average daily net assets.
Bankers Trust has contractually agreed to waive its fees and reimburse expenses
of the Fund and the Portfolio through January 31, 2010, to the extent necessary,
to limit all expenses to 1.50%. Furthermore, Bankers Trust has agreed to waive
its fees voluntarily 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. Bankers Trust may
terminate these voluntary waivers and reimbursements at anytime without notice
to the shareholders.
The Fund is also subject to shareholder servicing fees in the maximum amount of
.25% of average daily net assets.
Shareholder transaction expenses are charges paid when investors buy, redeem or
exchange shares. Under normal circumstances, redemptions of shares that are
qualified are not subject to a redemption fee. Redemptions of shares or
redemptions from 401(k) plans or IRA's that are not qualified are subject to a
3% fee if the "interest rate trigger" is active. As of October 1, 2000, the
redemption fee was reduced to 2%.
ICC Distributors, Inc. provides distribution services to the Fund.
NOTE 3 -- SHARES OF BENEFICIAL INTEREST
At September 30, 2000, there were an unlimited number of shares of beneficial
interest authorized. Transactions in shares of beneficial interest for the year
ended September 30, 2000 were as follows:
FOR THE PERIOD
FOR THE DECEMBER 23, 19981
YEAR ENDED THROUGH
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT
-------- ---------- ------- ---------
Sold 20,225 $ 202,238 44,719 $ 447,190
Reinvested 1,152 11,523 178 1,781
Redeemed (11,188) (111,874) (33,138) (331,382)
------- --------- ------- ---------
Net Increase 10,189 $ 101,887 11,759 $ 117,589
======= ========= ======= =========
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1 Commencement of operations.
NOTE 4 -- CAPITAL LOSSES
At September 30, 2000 capital loss carryforwards available as a reduction
against future net realized capital gains consisted of $121 and $1,793 which
will expire in September 2007 and 2008, respectively. In addition, the Fund has
deferred a post October capital loss of $1,266 to the next year.
NOTE 5 -- FUND NAME CHANGE
On January 31, 2000, the Fund changed its name from BT PreservationPlus Income
Fund to PreservationPlus Income.
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REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Trustees
BT Investment Funds -- PreservationPlus Income
We have audited the accompanying statement of assets and liabilities of
PreservationPlus Income (the "Fund") as of September 30, 2000, and the related
statement of operations for the year then ended and the statements of changes in
net assets and the financial highlights for the year then ended and 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 audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 audits provide 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 at September 30, 2000, the results of its operations for
the year then ended and the changes in its net assets and its financial
highlights for the year then ended and for the period December 23, 1998
(commencement of operations) through September 30, 1999, in conformity with
accounting principles generally accepted in the United States.
S/SIGNATURE ERNST & YOUNG LLP
Philadelphia, Pennsylvania
November 3, 2000
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TAX INFORMATION (Unaudited) For theYear Ended September 30, 2000
The amounts shown may differ from those elsewhere in this report because of
differences between tax and financial reporting requirements.
Of the net investment income distributions made during the fiscal year ended
September 30, 2000, 5.39% has been derived from investments in US Government and
Agency Obligations. All or a portion of the distributions from this income may
be exempt from taxation at the state level. Consult your tax advisor for state
specific information.
--------------------------------------------------------------------------------
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--------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS September 30, 2000
--------------------------------------------------------------------------------
PRINCIPAL
AMOUNT SECURITY VALUE
--------------------------------------------------------------------------------
INVESTMENTS IN UNAFFILIATED ISSUERS
ASSET-BACKED SECURITIES -- 9.3%
California Infrastructure PG&E:
$2,000,000 6.38%, 9/25/08 $ 1,966,440
2,000,000 6.42%, 9/25/08 1,966,390
Chase Funding Mortgage Loan,
3,000,000 7.674%, 10/25/19 3,024,180
Chemical Credit Card Master Trust,
3,000,000 7.09%, 2/15/09 3,024,360
Copelco Capital Funding Corp.,
3,000,000 7.12%, 8/18/03 3,014,055
Providian Master Trust,
2,500,000 7.49%, 8/17/09 2,560,087
Residential Funding Mortgage
Securities,
3,000,000 8.00%, 5/25/13 3,019,995
-----------
TOTAL ASSET-BACKED SECURITIES
(Cost $18,220,672) 18,575,507
-----------
CORPORATE DEBT -- 40.7%
FINANCIALS -- 18.1%
Abbey National PLC,
1,000,000 6.69%, 10/17/05 982,711
ABN Amro Bank, NV,
1,000,000 7.25%, 5/31/05 1,005,925
Allstate Corp.,
1,000,000 7.20%, 12/1/09 972,080
American General Finance,
1,440,000 5.875%, 12/15/05 1,355,926
Aristar, Inc.,
1,600,000 6.00%, 5/15/02 1,575,234
Associates Corp.,
1,500,000 8.55%, 7/15/09 1,579,605
Avco Financial Services,
425,000 6.00%, 8/15/02 417,035
Bank of Tokyo - Mitsubishi,
1,000,000 8.40%, 4/15/10 1,017,345
BankBoston,
1,000,000 6.50%, 12/19/07 951,701
Bear Stearns Co., Inc.,
1,000,000 7.625%, 2/1/05 1,012,470
Bombardier Capital Inc.,
1,000,000 7.30%, 12/15/02 993,978
CIT Group, Inc.,
1,000,000 7.125%, 10/15/04 997,355
Citifinancial,
1,000,000 6.50%, 8/1/04 981,051
CNA Financial,
1,000,000 6.45%, 1/15/08 884,230
Deutsche Telekom International
Finance,
1,000,000 7.75%, 6/15/05 1,023,691
Everest Reins Holding, Co.,
1,000,000 8.75%, 3/15/10 1,044,333
Ford Motor Credit Corp.:
1,000,000 7.50%, 6/15/03 1,009,468
2,000,000 7.375%, 10/28/09 1,955,760
General Electric Capital Corp.,
1,000,000 6.75%, 9/11/03 1,002,039
General Motors Acceptance Corp.,
2,000,000 7.75%, 1/19/10 2,022,820
Heller Financial Inc.,
1,000,000 7.875%, 5/15/03 1,015,025
Household Finance Corp.,
1,000,000 6.50%, 11/15/08 937,710
J.P. Morgan & Co., Inc.,
1,000,000 6.00%, 1/15/09 920,038
Lehman Brothers Holdings:
950,000 6.625%, 12/27/02 943,040
775,000 8.25%, 6/15/07 802,265
Merrill Lynch & Co.,
1,000,000 6.64%, 9/19/02 997,314
Morgan Stanley Dean Witter,
1,600,000 7.00%, 10/1/13 1,535,699
Paine Webber Group, Inc.,
1,000,000 6.375%, 5/15/04 977,028
Santander Financial Issuance,
1,500,000 6.80%, 7/15/05 1,466,496
Suntrust Banks Inc.,
1,000,000 7.75%, 5/1/10 1,024,672
Transamerica Finance Corp.,
1,000,000 7.25%, 8/15/02 1,001,849
Wells Fargo & Co.,
1,000,000 7.25%, 8/24/05 1,012,063
Westdeutsche Landesbank NY,
1,000,000 6.05%, 1/15/09 913,927
-----------
36,331,883
-----------
INDUSTRIAL -- 6.4%
Delphi Auto Systems Corp.,
1,000,000 6.50%, 5/1/09 914,038
News America Holdings,
1,000,000 8.50%, 2/15/05 1,043,724
Northrop-Grumman Corp.,
1,000,000 7.00%, 3/1/06 975,052
See Notes to Financial Statements.
--------------------------------------------------------------------------------
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SCHEDULE OF PORTFOLIO INVESTMENTS September 30, 2000
--------------------------------------------------------------------------------
PRINCIPAL
AMOUNT SECURITY VALUE
--------------------------------------------------------------------------------
Paramount Communications,
$1,000,000 7.50%, 1/15/02 $ 1,003,538
Pepsi Bottling Holdings,
1,000,000 5.625%, 2/17/09 894,216
Raytheon Co.(144a),
1,000,000 7.90%, 3/1/03 1,016,893
Tele-Commun Inc.,
1,000,000 9.25%, 4/15/02 1,033,361
Time Warner, Inc.,
1,000,000 7.48%, 1/15/08 998,776
TYCO International Group,
1,000,000 5.875%, 11/1/04 955,097
Tyson Foods Inc.,
1,000,000 6.75%, 6/1/05 969,865
Union Pacific Corp.,
1,000,000 7.25%, 11/1/08 977,120
USX Corporation,
1,000,000 9.375%, 2/15/12 1,109,554
Viacom, Inc.,
1,000,000 7.70%, 7/30/10 1,020,291
-----------
12,911,525
-----------
UTILITIES -- 4.9% AT&T Corp.,
1,000,000 6.50%, 3/15/29 832,165
Clear Channel Communications,
1,000,000 7.25%, 9/15/03 1,001,834
Coastal Corp,
1,000,000 7.75%, 6/15/10 1,014,905
Conoco Inc.,
1,000,000 6.35%, 4/15/09 947,877
Dynegy Holdings, Inc.,
1,000,000 8.125%, 3/15/05 1,025,802
GTE California, Inc.,
1,000,000 5.50%, 1/15/09 882,915
MCI Worldcom, Inc.,
1,000,000 6.95%, 8/15/06 984,894
Nigara Mohawk Power,
1,000,000 7.75%, 10/1/08 1,005,649
Southern Carolina Electric & Gas,
1,000,000 7.50%, 6/15/05 1,016,676
Tosco Corp.,
1,250,000 7.625%, 5/15/06 1,257,296
-----------
9,970,013
-----------
OTHER -- 11.3%
Atlantic Richfield Bpa,
1,000,000 10.875%, 7/15/05 1,167,770
Compaq Computer,
1,000,000 7.45%, 8/1/02 1,003,899
Cox Communication, Inc.,
1,000,000 7.50%, 8/15/04 1,008,591
DaimlerChrysler NA Holdings:
1,000,000 6.59%, 6/18/02 999,424
1,000,000 7.125%, 4/10/03 1,002,518
Deere & Co.,
1,000,000 7.85%, 5/15/10 1,018,241
Delta Air Lines,
1,000,000 7.90%, 12/15/09 957,431
Duke Capital Corp.,
1,000,000 7.50%, 10/1/09 1,002,585
Federated Department Stores,
1,000,000 6.90%, 4/1/29 783,027
Goodyear Tire & Rubber,
1,000,000 8.50%, 3/15/07 1,028,577
Hertz Corp.,
850,000 7.00%, 7/1/04 839,834
Kroger Co.,
1,000,000 7.45%, 3/1/08 967,269
Lockheed Martin Corp.,
1,137,000 7.25%, 5/15/06 1,126,196
Marriott International,
1,000,000 6.875%, 11/15/05 966,446
Occidental Petroleum,
1,000,000 7.375%, 11/15/08 987,262
Phillips Petro,
1,000,000 8.50%, 5/25/05 1,056,080
PP&L Capital Funding, Inc.,
1,000,000 8.375%, 6/15/07 1,007,045
Seagrams & Sons,
1,000,000 6.25%, 12/15/01 988,951
Sears Roebuck Acceptance,
1,000,000 6.00%, 3/20/03 971,635
Sprint Capital Corp,
1,000,000 6.875%, 11/15/28 853,295
TRW, Inc.,
1,000,000 6.50%, 6/1/02 984,271
Vodafone Airtouch PLC,
1,000,000 7.75%, 2/15/10 1,019,210
Wal-Mart Stores,
1,000,000 6.875%, 8/10/09 987,450
-----------
22,727,007
-----------
TOTAL CORPORATE DEBT
(Cost $80,879,930) 81,940,428
-----------
See Notes to Financial Statements.
--------------------------------------------------------------------------------
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--------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS September 30, 2000
--------------------------------------------------------------------------------
PRINCIPAL
AMOUNT SECURITY VALUE
--------------------------------------------------------------------------------
FOREIGN DEBT -- 2.2%
Celulosa Arauco y Constitu,
$1,000,000 6.75%, 12/15/03 $ 962,445
Corp Andina de Fomento,
1,000,000 7.75%, 3/1/04 1,007,887
Hanson Overseas B.V.,
1,000,000 7.375%, 1/15/03 1,003,481
HSBC Holding PLC,
1,000,000 7.50%, 7/15/09 995,530
Koninklijke Kpn NV (144a),
500,000 7.50%, 10/1/05 502,250
-----------
TOTAL FOREIGN DEBT
(Cost $4,448,865) 4,471,593
-----------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 14.5%
Bank of America Mortgage Securities,
3,000,000 5.90%, 4/25/29 2,873,220
Bear Stearns Commercial Mortgage
Securities:
112,485 7.64%, 2/15/09 115,611
2,000,000 7.78%, 2/15/10 2,079,858
1,000,000 7.11%, 1/15/32 1,002,500
Chase Mortgage Finance Corp.,
3,000,000 6.75%, 8/25/29 2,898,060
Citigroup Mortage Securities, Inc.,
3,000,000 6.50%, 7/25/28 2,899,998
First Union, Lehman Brothers Bank
of America,
348,659 6.28%, 6/18/07 341,738
First Union National Bank
Commercial Mortgage,
1,176,612 7.184%, 9/15/08 1,187,697
GE Capital Mortgage Services, Inc.,
885,267 6.00%, 7/25/29 846,276
LB-UBS Commercial Mortgage Trust,
2,483,604 7.95%, 7/15/09 2,593,794
LB Comm Conduit Mortgage Trust,
2,938,963 6.41%, 8/15/07 2,882,878
Morgan Stanley Capital Inc.,
2,589,508 6.76%, 11/15/08 2,561,515
Vendee Mortgage Trust,
134,958 7.50%, 8/15/17 135,133
PNC Mortgage Acceptance Corp,
1,974,920 7.52%, 7/15/08 2,015,935
Residential Funding Mortgage
Securities:
890,490 6.75%, 4/25/29 856,683
3,000,000 7.10%, 12/25/29 2,936,790
Norwest Asset Securities Corp.,
949,991 6.75%, 8/25/29 929,457
-----------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $28,608,339) 29,157,143
-----------
MORTGAGE BACKED SECURITIES-- 16.2%
FGLMC GOLD,
4,530,948 7.50%, 10/1/24 4,557,834
FHLMC GOLD,
883,167 8.00%, 3/1/27 897,848
FNCL:
3,957,620 8.00%, 5/1/25 4,012,531
2,198,135 8.00%, 9/1/26 2,228,634
2,048,096 7.50%, 7/1/27 2,045,151
5,497,106 7.50%, 9/1/27 5,489,201
5,502,180 8.00%, 9/1/27 5,578,523
953,664 6.50%, 9/1/28 916,706
991,535 6.50%, 10/1/28 953,110
950,530 6.50%, 12/1/28 913,694
FNMA,
4,881,987 7.369%, 1/17/13 4,985,180
-----------
TOTAL MORTGAGE BACKED SECURITIES
(Cost $32,397,584) 32,578,412
-----------
US TREASURY SECURITY -- 0.2%
US Treasury Note,
440,000 5.25%, 5/15/04 430,513
-----------
TOTAL US TREASURY SECURITY
(Cost $431,613) 430,513
-----------
US GOVERNMENT & AGENCY OBLIGATIONS -- 2.5%
FHLB,
1,000,000 6.875%, 7/18/02 1,006,398
FHLMC,
4,000,000 6.25%, 7/15/04 3,961,912
-----------
TOTAL US GOVERNMENT & AGENCY OBLIGATIONS
(Cost $4,895,298) 4,968,310
-----------
See Notes to Financial Statements.
--------------------------------------------------------------------------------
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PreservationPlus Income Portfolio
--------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS September 30, 2000
--------------------------------------------------------------------------------
PRINCIPAL
AMOUNT/
SHARES SECURITY VALUE
--------------------------------------------------------------------------------
SHORT-TERM INSTRUMENTS -- 14.4%
US TREASURY BILLS -- 0.8%
US Treasury Bill,
$1,675,000 5.945%, 10/19/00 $ 1,670,436
------------
INVESTMENTS IN AFFILIATED INVESTMENT COMPANIES
MUTUAL FUNDS -- 13.6%
27,349,793 Cash Management Institutional, 27,349,793
------------
TOTAL SHORT-TERM INSTRUMENTS
(Cost $29,020,351) 29,020,229
------------
TOTAL INVESTMENTS
(Cost $198,902,652) 100.0% $201,142,135
------------
WRAPPER AGREEMENTS1
Bank of America NT&SA $ (289,672)
Caisse des Depots et Consignations (932,194)
TransAmerica Life Insurance & Annuity Co. (430,302)
-----------
TOTAL WRAPPER AGREEMENTS (0.9)% (1,652,168)
-----------
OTHER ASSETS IN EXCESS OF
LIABILITIES 0.9% 1,660,506
----- -----------
NET ASSETS 100.0% $201,150,473
===== ============
--------------------------------------------------------------------------------
1 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.
The following abbreviations are used in portfolio descriptions:
FGLMC -- Federal Government Loan Mortgage Company
FHLMC -- Federal Home Loan Mortgage Corporation
FNCL -- Federal National Mortgage Association Class Loan
FNMA -- Federal National Mortgage Association
See Notes to Financial Statements.
--------------------------------------------------------------------------------
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PreservationPlus Income Portfolio
--------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000
------------------------------------------------------------------------------------------------
<S> <C>
ASSETS
Investment in Unaffiliated Issuers at Value (Cost of $171,552,859) $173,792,342
Investments in Affiliated Investment Company, at Value (Cost of $27,349,793) 27,349,793
Interest Receivable1 2,362,139
Cash 834,702
Unrealized Appreciation on Forward Foreign Currency Contracts 101,634
Prepaid Expenses and Other 71,734
Due from Bankers Trust 136,657
------------
Total Assets 204,649,001
------------
LIABILITIES
Payable for Securities Purchased 1,504,494
Wrapper Agreements 1,652,168
Variation Margin Payable on Futures Transactions 244,836
Accrued Expenses and Other 97,030
------------
Total Liabilities 3,498,528
------------
NET ASSETS $201,150,473
============
<FN>
--------------------------------------------------------------------------------
1 Includes $142,450 from the Portfolio's investment in Cash Management Institutional.
</FN>
</TABLE>
See Notes to Financial Statements.
--------------------------------------------------------------------------------
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--------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
SEPTEMBER 30, 2000
----------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
Interest Income $7,781,365
Credited Rate Interest 567,056
----------
Total Investment Income 8,348,421
----------
EXPENSES
Advisory Fees 721,834
Wrapper Fees 221,268
Professional Fees 55,476
Administration and Service Fees 55,317
Trustees Fees 3,261
Miscellaneous 16,187
----------
Total Expenses 1,073,343
Less: Fee Waivers or Expense Reimbursements (687,148)
----------
Net Expenses 386,195
----------
NET INVESTMENT INCOME 7,962,226
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FOREIGN CURRENCIES, FORWARD
FOREIGN CURRENCY TRANSACTIONS, FUTURES AND WRAPPER AGREEMENTS Net Realized
Gain (Loss) from:
Investment Transactions (742,746)
Foreign Currency Transactions 82,319
Forward Foreign Currency Transactions (78,093)
Futures Transactions 793,273
Net Change in Unrealized Appreciation/Depreciation on Investments,
Foreign Currency, Forward Foreign Currency and
Futures Transactions 2,575,837
Net Change in Unrealized Appreciation/Depreciation on Wrapper Agreements (2,630,590)
----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FOREIGN CURRENCIES,
FORWARD FOREIGN CURRENCY TRANSACTIONS, FUTURES AND
WRAPPER AGREEMENTS --
----------
NET INCREASE IN NET ASSETS FROM OPERATIONS $7,962,226
==========
</TABLE>
See Notes to Financial Statements.
--------------------------------------------------------------------------------
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PreservationPlus Income Portfolio
--------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE DECEMBER 23, 19981
YEAR ENDED THROUGH
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS
Net Investment Income $ 7,962,226 $ 597,975
Net Realized Gain (Loss) from Investment, Foreign
Currency, Forward Foreign Currency and Futures
Transactions 54,753 (32,820)
Net Change in Unrealized Appreciation/Depreciation
on Investments, Foreign Currencies, Forward
Foreign Currencies and Futures 2,575,837 (329,564)
Net Unrealized Appreciation/Depreciation on
Wrapper Agreements (2,630,590) 362,384
------------ ------------
Net Increase in Net Assets from Operations 7,962,226 597,975
------------ ------------
CAPITAL TRANSACTIONS
Proceeds from Capital Invested 186,286,635 44,761,026
Value of Capital Withdrawn (19,193,385) (19,264,004)
------------ ------------
Net Increase in Net Assets from Capital Transactions 167,093,250 25,497,022
------------ ------------
TOTAL INCREASE IN NET ASSETS 175,055,476 26,094,997
NET ASSETS
Beginning of Period 26,094,997 --
------------ ------------
End of Period $201,150,473 $ 26,094,997
============ ============
<FN>
--------------------------------------------------------------------------------
1 Commencement of operations.
</FN>
</TABLE>
See Notes to Financial Statements.
--------------------------------------------------------------------------------
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PreservationPlus Income Portfolio
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE DECEMBER 23, 19981
YEAR ENDED THROUGH
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
--------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SUPPLEMENTAL DATA AND RATIOS:
Net Assets, End of Period (000s omitted) $201,150 $26,095
Ratios to Average Net Assets:
Net Investment Income 7.33% 6.47%2
Expenses After Waivers 0.35% 0.49%2
Expenses Before Waivers 0.99% 1.41%2
Portfolio Turnover Rate 0%3 149%
<FN>
--------------------------------------------------------------------------------
1 Commencement of operations.
2 Annualized.
3 Less than 1%.
</FN>
</TABLE>
See Notes to Financial Statements.
--------------------------------------------------------------------------------
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NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
A. ORGANIZATION
The BT Investment Portfolios (the "Portfolio Trust") is registered under the
Investment Company Act of 1940 (the "Act"), as amended, as an open-end
management investment company. The Portfolio Trust was organized as an
unincorporated trust under the laws of New York. The PreservationPlus Income
Portfolio (the "Portfolio"), one of the series of the Portfolio Trust, was
organized and began operations on December 23, 1998. The Declaration of Trust
permits the Board of Trustees (the "Trustees") to issue beneficial interests in
the Portfolio.
B. VALUATION OF SECURITIES
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 are normally
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 Company
pursuant to procedures adopted by the Portfolio's Board of Trustees.
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 Board of Trustees, 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. SECURITIES TRANSACTIONS AND INTEREST INCOME
Securities transactions are accounted for on a trade date basis. Interest income
is recorded on the accrual basis and includes amortization of premium and
accretion of discount on investments. Realized gains and losses from securities
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
fluctuations 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) 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. This risk is in addition to the risk of decline in the value of
the 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 "Valuation of Securities" above.
E. FOREIGN CURRENCY TRANSACTIONS
The books and records of the Portfolio are maintained in US dollars. All assets
and liabilities initially expressed in foreign currencies are converted into US
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 for the purpose
of settling specific purchases or sales of securities denominated in a foreign
currency or
--------------------------------------------------------------------------------
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--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
with respect to the Portfolio's investments. The net US 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 Assets and
Liabilities 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 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 or sell 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,
depending 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 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. ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States 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"), an indirect wholly owned subsidiary of
Deutsche Bank AG. Under this agreement, Bankers Trust provides administrative
and custody services to the Portfolio. These services are provided 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 a 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 Cash
Management Institutional.
Bankers Trust has contractually agreed to waive its fees and reimburse expenses
of the Portfolio through January 31, 2010, to the extent necessary, to limit all
expenses to .35% of the average daily net assets of the Portfolio.
The Portfolio may invest in Cash Management Institutional ("Cash Management"),
an open-end management
--------------------------------------------------------------------------------
23
<PAGE>
PreservationPlus Income Portfolio
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
investment company managed by Bankers Trust. Cash Management is offered as a
cash management option to the Portfolio and other accounts managed by Bankers
Trust. Distributions from Cash Management to the Portfolio for the year ended
September 30, 2000 amounted to $1,146,506, and are included in interest income.
At September 30, 2000, the Portfolio was a participant with other affiliated
entities in a revolving credit facility in the amount of $200,000,000, which
expires April 27, 2001. A commitment fee on the average daily amount of the
available commitment is payable on a quarterly basis and apportioned among all
participants based on net assets. No amounts were drawn down or outstanding for
the Portfolio under the credit facility for the year ended September 30, 2000.
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 September 30, 2000, were
$151,662,183 and $250,000, respectively.
For federal income tax purposes, the tax basis of investments held at September
30, 2000, was $198,902,652. The aggregate gross unrealized appreciation was
$2,624,555, and the aggregate gross unrealized depreciation for all investments
was $385,072 as of September 30, 2000.
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.
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.
--------------------------------------------------------------------------------
24
<PAGE>
PreservationPlus Income Portfolio
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
NOTE 5 -- FUTURES CONTRACTS
As of September 30, 2000 the Portfolio had the following obligations under these
financial instruments.
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION
TYPE OF FUTURES EXPIRATION CONTRACTS POSITION MARKET VALUE (DEPRECIATION)
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
S&P/Toronto Stock Exchange
60 Index Futures December 18, 2000 85 Long $ 7,057,713 $(350,508)
SPI Futures January 2, 2000 58 Long 2,610,019 (23,573)
US10 Year Note Futures December 20, 2000 32 Long 3,207,000 4,856
Euro BondFutures December 8, 2000 20 Long 1,857,700 3,898
CAC40 Euro Index Futures November 1, 2000 20 Long 1,110,121 (62,638)
Long Gilt Futures December 28, 2000 8 Long 1,338,039 6,620
Dax Index Futures December 18, 2000 4 Long 606,355 (31,112)
Topix Index Futures December 8, 2000 (3) Short (408,220) 3,712
S&P 500 Index Futures December 15, 2000 (16) Short (5,814,800) 246,104
FTSE 100 Index Futures December 18, 2000 (25) Short (2,346,692) 102,366
Australian 10 Year Bond Futures December 18, 2000 (41) Short (3,171,966) 23,057
Canadian 10 Year Bond Futures December 29, 2000 (99) Short (6,689,083) (22,241)
------------------------------------------------------------------------------------------------------------------------
Total $ (99,459)
------------------------------------------------------------------------------------------------------------------------
</TABLE>
The use of futures contracts involves elements of market risk and risks in
excess of the amount recognized in the Statement of Assets and Liabilities. The
"market value" presented above represents the Portfolio's total exposure in such
contracts whereas only the net unrealized appreciation/depreciation is reflected
in the Portfolio's net assets.
NOTE 6 -- FORWARD FOREIGN CURRENCY CONTRACTS
As of September 30, 2000, the Portfolio had the following open forward foreign
currency contracts:
<TABLE>
<CAPTION>
NET UNREALIZED
APPRECIATION
CONTRACT (DEPRECIATION)
CONTRACTS IN EXCHANGE FOR SETTLEMENT DATE VALUE (US$) (US$)
---------------------------------------------------------------------------------------------------------------------
CONTRACTS TO DELIVER
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Australian Dollar 1,170,000 US Dollars $ 661,202 10/6/2000 $ 633,619 $ 27,583
British Pound 584,000 US Dollars 845,801 10/6/2000 863,444 (17,643)
Canadian Dollar 7,419,000 US Dollars 5,008,946 10/5/2000 4,930,770 78,176
Japanese Yen 35,487,000 US Dollars 337,409 10/6/2000 328,401 9,008
---------------------------------------------------------------------------------------------------------------------
Total $ 97,124
---------------------------------------------------------------------------------------------------------------------
CONTRACTS TO RECEIVE
---------------------------------------------------------------------------------------------------------------------
Euro 2,408,000 US Dollars $2,120,365 10/6/2000 $2,124,875 $ 4,510
---------------------------------------------------------------------------------------------------------------------
Total 4,510
---------------------------------------------------------------------------------------------------------------------
Total Unrealized Appreciation $101,634
---------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 7 -- PORTFOLIO NAME CHANGE
On January 31, 2000, the Portfolio changed its name from BT PreservationPlus
Income Portfolio to PreservationPlus Income Portfolio.
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25
<PAGE>
PreservationPlus Income Portfolio
--------------------------------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Trustees
BT Investment Portfolios -- PreservationPlus Income Portfolio
We have audited the accompanying statement of assets and liabilities of
PreservationPlus Income Portfolio (the "Portfolio") as of September 30, 2000,
and the related statement of operations for the year then ended and the
statements of changes in net assets and the financial highlights for the year
then ended and 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 audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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, 2000, 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
audits provide 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, 2000, the results of its
operations for the year then ended and the changes in its net assets and its
financial highlights for the year then ended and for the period December 23,
1998 (commencement of operations) through September 30, 1999, in conformity with
accounting principles generally accepted in the United States.
S/SIGNATURE ERNST & YOUNG LLP
Philadelphia, Pennsylvania
November 3, 2000
--------------------------------------------------------------------------------
26
<PAGE>
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:
DEUTSCHE ASSET MANAGEMENT SERVICE CENTER
P.O. BOX 219210
KANSAS CITY, MO 64121-9210
or call our toll-free number: 1-800-730-1313
This report must be preceded or accompanied by a current prospectus for the
Fund.
Deutsche Asset Management is the marketing name for the asset management
activities of Deutsche Bank AG, Deutsche Fund Management, Inc., Bankers Trust
Company, DB Alex. Brown LLC, Deutsche Asset Management, Inc., and Deutsche Asset
Management Investment Services Limited.
PreservationPlus Income CUSIP #055922660
1722ANN (9/00)
Distributed by:
ICC Distributors, Inc.
